Following an announcement of a coordinated European bank rescue plan the Euro rose against the Dollar. It is thought by some economists that the European rescue plans have reduced the dollar's attractiveness as a safe haven. Since mid September the Euro had fallen against the dollar and now that credit markets are beginning to function again Forex traders are more confident of the Euro.



On Tuesday two events gave investors more confidence in both stock and currency markets. The first was the US plan to buy $250 billion dollars worth of interest in major banks. It is hoped the additional capital will unfreeze credit markets and help businesses to obtain short term loans necessary for day to day expenses. Treasury Secretary Paulson noted that it is now up to these banks to resume normal lending practices in an effort to stimulate the economy. The success of the plan is dependent on banks resuming normal lending and a failure to do so would cause the plan to collapse.

Traders also received good news from the London Interbank Offered Rate in the form of substantially lowered rates that indicate the acceptance by the London banking community of global bailout plans. Again the successes of the bailout plans depend on banks resuming normal lending practices.

Despite the possible return to normalcy in the banking industry many investors and traders remain concerned about a possible US recession. Investors will be scrutinizing economic indicators carefully in the near future for signs of a possible recession. Investors and traders will be watching industrial production, the unemployment rate, consumer spending, and the housing market. It is thought that the Federal Reserve may make another rate cut which would put pressure on the US dollar in currency markets including the Forex.

The Japanese Yen rose against the Dollar amid concerns that the $250 billion bank rescue plan will not be enough to prevent a recession. The Yen also gained against the Euro and the dollar traded near a one week low against the Euro. Many economists predict that US retail sales are declining at a faster pace and US job losses will curb consumer spending.

Treasury Secretary Paulson urged the banks receiving injections of capital to use the money to stimulate economic growth. Nine financial institutions, including Citigroup Inc. and Goldman Sachs Group Inc., will get $125 billion within days. On October 13th European countries committed a whopping $1.8 trillion to guarantee loans and stimulate lending.

The US dollar has been trading steady despite the economic crisis in the US much to the amazement of many currency traders. With global stimulus plans beginning to take effect Forex markets should provide some interesting opportunities over the next few months.