What does current financial crisis mean to Forex trading?

Current global financial crisis has caused many investors to flee from the stock market and to seek refuge elsewhere like gold or currencies.

Why did the current financial crisis doesn't have devastating effect on Forex?

The commodity traded on Forex is currencies. Since virtually all of the world's leading economies are experiencing a financial meltdown, currency rates have not changed significantly. Hence, when the stock market is crashing, Forex market is doing business as usual.

Historically, the major factor that determines currency rates has been the Fed's interest rates.

As the Fed combats the meltdown and possible recession, it will probably slash the interest rates, which, in theory, should contribute to the growth of USD against other currencies.

However, this also depends on the actions of European central banks. On the other hand, the Fed loading of nearly one trillion dollars into the US economy may have the opposite effect on the value of dollar.


How these measures play out and how European economies deal with the crisis on their end, will determine where the currency rates go.