The Washington Post reported late Thursday that the US Federal Reserve and Treasury department are in the process of lining up buyers for beleagured investment bank Lehman Brothers. Lehman shares tumbled after Goldman Sachs reported that it would not be acquiring the financial giant. Authorities are said to be arranging a consortium of private investors including Bank of America.
What does this mean for the forex market?
Lehman Brother's inability to raise capital has been a major drag on risk appetite across markets in recent days. DailyFX Currency Analyst Ilya Spivak has reported that the US Dollar's persistant strengh owes to cross-asset capital flows: investors are cashing out of risky assets on fears of what what the collapse of a major instituation like Lehman would do to the global financial system. Given the interest rate outlook for 2009, it makes sense that the only viable currencies to hold are those that will not suffer interest rate cuts. To that effect, the US Dollar and Japanese Yen appear most attractive to risk averse investors looking to park their capital until the Lehman sale blows over. Indeed, today saw Japan reveal its second straight quarterly GDP decline, but the Yen remained virtually unaffected.
Written By Luis Gil, DailyFX.com
E-mail: lgil@fxcm.com
Al Bawaba
