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The Foreign Exchange Market, or just FOREX Market, is a market much like any other commodity market, but with one main difference, foreign currency is traded on the FOREX market. The price of which currencies are traded, bought, and sold is determined by the exchange rate of each country’s currency. On the FOREX market, there are two types of exchange rates which a country can have to determine the value of its dollar. These exchange rates are the fixed and floating exchange rate. A fixed exchange rate is set or fixed by a particular country’s government in order to maintain the same value of the dollar. For example, China’s currency is fixed to at 7.11 RMB to the United States Dollar. If a country’s exchange rate is floating, this means it is affected by fluctuations in the market, and its value is determined using the principles of supply and demand. In the Foreign Exchange Market, supply is determined by sellers of a particular country’s currency, and demand is generated by the buyers of that country’s currency. Examples of buyers of a country’s currency are exporters, speculators who are expecting the currency’s value to rise, as well as foreign investors, and travelers. Sellers of a particular country’s dollar would be importers, speculators who expect the value of the dollar to fall, investments to foreign countries, as well as travelers to foreign countries.

Over the last year or so, the United State’s Dollar has drastically fallen in value against many other countries due to inappropriate lending by banks and the lowering if US interest rates to historical lows. In an effort to avoid a recession that many experts say is inevitable, the Federal Reserve Bank, or the Fed for short, has come up with a stimulus package that they hope will wake up the economy and steer it clear of recession. The first of these efforts have been declared a success as the US Dollar has recently bounced back from record lows. To aid the economy, the Fed offered to lend $200 Billion US Dollars to financial institutes in exchange for debt. The US dollar, out of the major traded currencies, gained the most of any other currency against the Japanese Yen, stimulated by the aid provided by the Fed, helping the US dollar to break its lowest value in eight years. The only other currency to follow closely behind the US Dollar was the Swiss Franc, which benefited after demands for carry trades increased after the announcement for the US Federal Reserve Bank. The US Dollar even managed to make gains against the Euro and the Great British Pound, both of which were experiencing all time highs against the diminishing US Dollar. The Euro was down to 1.5330 to the US dollar after previously being at an all time high of 1.5496. The Great British Pound also fell, now currently trading at 2.0060 GBP to the US Dollar. With more investor taking more risks, commodity dollars had moderate gains as compared to the US Dollar. Rising commodity prices, especially the price per barrel of oil, which has skyrocketed to a record high of $108.44 USD a barrel, also helped the US Dollar make gains in the FOREX market.

However, there is still some concerns surrounding the United State’s trade deficit, which has widened form $57.9 Billion to $58.2 Billion, mostly due to the fact that oil prices have risen to record highs. There are also concerns of higher inflation rates than expected, though these concerns have been put to rest after it was it was discovered that the trade figures were better than many had expected due to an increase in exports. However, concerns of recession are still prominent in the minds of many consumers and the US Dollar is facing downward pressure from a two year low in consumer confidence.

The Federal Reserve bank’s aid efforts are also having strong positive effects in the financial markets, as many stock markets saw gains for the first time in over four trading sessions. This comes after the Fed aimed to restore liquidity to financial markets. The DJIA financial index saw a seven week high after gaining 416.66 points, bringing the index to a total of 12,156.81. The only reported losses of the Big 30 were those of Boeing, with all other companies posting gains. There were surprise rises for the S&P500 index, which rose by 47.28 points, topping up the total of the index at 1,320.65. Of the S&P500, Thornburg Mortgage lead in gains, while Wellpoint Inc topped the losers. Investors cheered with joy as the US Treasury lowered security bond prices and are now offering higher yield returns for the securities. The ten year yield rose from 3.45 percent to 3.60 percent, and the two year yield rode from 1.48 percent to 1.75 percent, a rise of almost 20 percent.

However, with all this good news comes some bad news. The US Dollar is expected to experience some fluctuations on the Foreign Exchange Market after Retail Sales and Import Sales are reviewed. As the US trade balance for January is expected to be released later this week, the US Dollar is expected to experience some more volatility. Over the past years, this report has not played an important part in determining the value of the US Dollar, but with many economist and Foreign Exchange traders expecting the record lows of the US Dollar to translate into increased export sales, the US Dollar may feel a greater influence of the Economic Trade Balance report than it previously has.

With all this being said, investors, FOREX traders, and consumers shouldn’t get their hopes up just yet. With the expected downward pressure from low consumer confidence to persist into the future as fears of recession are still center stage, combined with the inflationary pressure as commodity prices are rising, particularly those of record high oil prices, the US economy is expected to see little, if not any, economic growth. The US Dollar is still expected to remain at record lows for some time to come.