The Bank of International Settlements just released the results from its first survey of Central Banks in over three years, and the results were startling.  Forex volume rose 71% to $3.2 trillion per day, cementing the status of forex as the world’s largest market. Trading in forex derivatives also surged, to an average of over $2 trillion per day.  While the role of the USD has slipped somewhat, it remains the world’s reserve currency as evidenced by the fact that it represents over 40% of all forex volume. FinFacts reports:

"A significant expansion in the activity of investor groups including hedge funds" as well as individual investors also contributed to the increase."

Read More: Global daily turnover in currency markets rises…

The Central Bank of the UK will likely lower interest rates at its next meeting, following the lead of the Fed. The most recent British economic data indicated that inflation has fallen to its lowest level in over a year.  Moreover, UK (and European for that matter) monetary policy prioritizes price stability over employment, by unofficially targeting an inflation benchmark.  Thus, without regard to economic growth, the Bank of UK will adjust interest rates accordingly.  While the Pound-Dollar exchange rate is less sensitive to relative interest rates, the Pound has already fallen against the Euro, since the two countries compete over foreign capital.  Bloomberg News reports:

"The move down is probably going to continue. Sterling will remain under pressure. If any major central bank is going to emulate the Fed and cut rates, it’s going to be the BOE.” 

Read More: U.K. Pound Falls for Third Week Against Euro on Rate Cut Views

Alan Greenspan, former President of America’s Federal Reserve Bank, gained notoriety as well as universal trust based on his perceived ability to conduct monetary policy in exactly the way that the US economy demanded.  It was initially thought that his successor, Ben Bernanke, who has been in office for over a year, would have a more difficult time facilitating economic growth and avoiding recession because his primary goal was to control inflation. In practice, however, the two leaders have conducted monetary policy in much the same way, balancing the dual risks of inflation and unemployment. Thus, even though inflation remains above the Fed’s comfort zone, Bernanke engineered a 50 basis point rate cut at the last meeting of the Fed in order to avoid economic recession.  However, whether the Fed will prioritize unemployment (rate cuts) or inflation (rate hikes) is anyone’s guess.  Dollar bulls will no doubt be watching with bated breath, praying that he prioritizes inflation.  The New York Times reports:

“Where Greenspan had to hold off raising rates when the economy was strong. Bernanke’s challenge will be to hold off cutting rates when the economy slows down.” 

Read More: In Crisis, 2 Fed Chiefs Seem Alike

Forex Capital Markets LLC, the largest Forex Dealer Member, recently announced that it would begin offering so-called “Fractional Pip Pricing” in an effort to reduce the bid-ask spreads it offers customers. Previously, most, if not all forex brokers that cater to retail forex investors, quoted forex rates out to four decimal places (i.e. 1.4101 USD/Euro). However, due to its strong liquidity relationships with banks that facilitate forex trading, FXCM has negotiated tighter bid-ask spreads for its customers, which will enable it to quote exchange rates to five decimal places (i.e. 1.41007 USD/Euro. While FXCM expects to narrow spreads further in the future, it remains to be seen whether the competition will follow suit.

Read More: FXCM’s New Lower Spreads: Fractional Pip Pricing

Over the last five years, the Canadian Dollar has slowly climbed to parity against the USD, finally reaching the mythical 1:1 exchange rate last week. Canadian shoppers and
American tourists have taken notice, gradually adjusting their behavior in accordance wit their changing purchasing power. For many Canadians, this has translated into more frequent shopping trips across the border, whether for gasoline or for clothing. For Americans, this has resulted in a decline in the number of tourists visiting Canada. It is also slowly redefining the US-Canada trade dynamic. However, as Canada has become the United States’ largest supplier of oil, it is likely Canada that will
benefit most in this relationship. The New York Times reports:

The weakness of the American dollar worries some Canadian investors as well as businesses that rely on American customers.

Read More: Currency Parity Brings Canadian Shoppers South

The Japanese Yen is finally appreciating, though how long the upward streak will last is anyone’s guess.  These days, the Yen rises and falls on the whims of carry traders.  However, the enemy of the carry trade is volatility and the Fed’s lowering of US interest rates injected enough uncertainty into the markets to send carry traders slowly towards the exit.  As a result, currencies such as the Australian Dollar and New Zealand Kiwi, long popular with in carry trading circles, were quickly dumped as traders bought Yen to cover their positions. Whether the Yen can sustain its momentum depends primarily on the Central Bank of Japan. Bloomberg News reports:

Carry trades utilizing the New Zealand dollar lost 1.9 percent today, according to data compiled by Bloomberg, after gaining 2.3 percent so far this week as the Federal Reserve reduced the U.S. rate a half percentage point to 4.75 percent.

Read More: New Zealand Dollar Drops as Japanese Investors Return to Yen

Today, the Euro set another record, breaching the $1.40 mark.  While theoretically a meaningless achievement, $1.40 was an important psychological and technical barrier, since many traders place stop orders and limit orders at round numbers, such as $1.40.  Accordingly, upon surpassing $1.40, the Euro quickly accelerated upward, creating a short squeeze, where those who bet the Euro would not pass $1.40 were forced to buy to cover their positions. EU politicians have been surprisingly quiet as the Euro rose rapidly against the Dollar, commenting only that they would monitor the situation.  However, it seems inevitable that the value of the Euro will begin to play a more serious role in EU economic policy, since it is already beginning to hamper growth.  AFP News reports:

“Excessive volatility and disorderly movements in exchange rates is undesirable for economic growth,” European Central Bank president Jean-Claude Trichet said.

Read More: EU finance chiefs on guard over euro strength, market turmoil

With its continued strong performance against its neighbor to the south, the Canadian Dollar is almost defying logic, having jumped to 99cents against the USD in a matter of days. In purchasing power parity terms, the Loony is already among the most
expensive in the world.  However, achieving parity (i.e. an exchange rate of 1:1) has a psychological value that can’t be cast in economic terms. Plus, it doesn’t hurt that high commodity prices have helped Canada to maintain years of strong growth and become America’s largest trading partner in process.  And after the Fed chopped 50 basis points off of the US Federal Funds Rate, the Canada-US interest rate differential is virtually non-existent. One commentator thinks a 1:1 exchange could provide a basis for more economic cooperation between the two nations.  The Globe and Mail reports:

“Parity is a very normalized level. Our [US and Canada] economies have become so closely intertwined that I think down the road what you’re thinking about is more of a North American bloc.”

Read More: A call for parity doesn’t look so loony now

When the US Dollar eclipsed its previous record low against the Euro last week, commentators immediately began painting doomsday scenarios for the beleaguered currency. On paper, the argument for a continued decline in the Dollar is quite strong, due to a sagging economy, surging current account deficit, the prospect of lower interest rates and turmoil in US capital markets. But, in practice, the Dollar remains the world’s de facto reserve currency, which begs the question: “how much-if at all-will the Dollar decline?”

Let’s begin by examining the state of the US economy.  At this point, economists have clearly identified the housing/real estate sector as a major weakness in the US economy.  Instability and an overall lack of demand have contributed to falling prices for real estate, which is eating into consumers’ disposable income, and hence threatens to bring down the rest of the economy.  In fact, the most recent employment data, which has become the most-watched piece of economic data in recent years, signaled that for the last 3 months, no new jobs were created in America, which is a tremendous cause for concern.

As a result, it is all but certain that the Federal Reserve Bank will lower its benchmark interest rate at its next meeting, perhaps by as much as 50 basis points.  While this may soften the impact of the sagging housing market on the rest of the economy, it
will also decrease the EU-US interest rate differential to only 75 basis points. In addition, the European Central Bank will likely raise rates at its next meeting, which means the differential will be further reduced.  Combined with general instability in US capital markets, brought on by weakness in mortgage-backed securities, foreigners are beginning to grow wary of investing in the US.

While a US economic recession would decrease imports and perhaps stem the growing trade imbalance, foreigners may still decide that it is too risky to continue financing the US trade deficit.

On the other hand, many Dollar bulls insist (correctly) that the Dollar remains the world’s reserve currency, and serves as a safe haven in times of global economic instability.  And in fact, the Dollar initially appreciated in value despite the turmoil in its securities markets. However, this upward trend seems to have been the result of a temporary shunning of risk, and since then, the Dollar has resumed its fall.  In short, both in theory and in practice, the evidence suggests that the Greenback can still fall much further against the world’s major currencies.

That the balance of trade between the US and China is becoming more and more lopsided in favor of China should come as no surprise to anyone.  In fact, economists yawned when the August trade data revealed a 33% jump in the Chinese trade surplus.  As a result, many are beginning to argue that China can allow the Yuan to appreciate at a faster pace against the Dollar, since it is obvious that China’s export sector will not be materially affected by a stronger Yuan.  In addition, China now exports more goods and services to the EU than to America, yet another statistic which supports the notion that China can allow its currency to appreciate against the Dollar (the implication here being that the Euro-Yuan exchange rate should be more important to China at this point).  Finally, China’s inflation rate is now hovering around 6.5%, its highest level in over a decade.  A more valuable Yuan would presumably make imports less expensive, thus lowering prices across the board for Chinese consumers. Bloomberg News reports:

The Chinese currency is selling for about 7.51 to the dollar. It has risen almost 6 percent against the U.S. currency in the past year while falling more than 3 percent against the euro, leaving the overall competitiveness of China’s exports little changed.

Read More: Rising Euro Is What China Needs to Dump Dollar

The Brazilian Real is one of a string of currencies which is rising against the USD on the heels of speculation that the Federal Reserve Bank will cut US interest rates at its next meeting. If the meeting conforms with market expectations, the Fed will cut the benchmark federal funds rate by 50 basis points, to 4.75%. Such a move would further widen the gap between American and Brazilian interest rates, which are currently among the highest in the world.  The Brazilian Real has already climbed 10.5% against the USD during 2007, a run which should continue if the Brazilian economy further outperforms the US. Bloomberg News reports:

“Markets pressing the Fed for a rate cut will remain the story in global currency markets for a few more days,” said a local trader of Brazil’s foreign debt. “A rate cut would allow investors in Brazil to focus on the fundamentals, which point toward a stronger currency.”

Read More: Brazil’s Real Advances on Bets U.S. Will Cut Rates Next Week  

The Euro is closing in on the record high it achieved against the Dollar in July.  Once again, it is the interest rate story which is driving the currency skyward.  The continued rise of the collective economies of the EU is coinciding with a decline in the American economy, spurred by falling prices in the real estate and capital markets. As a result, economists are forecasting that this month’s respective central bank meetings will bring about a rate hike in the EU and a lowering of rates in the US. This prediction, which is also supported by the prices of interest rate futures, would narrow the EU-US interest rate differential to just 75 basis points!  Bloomberg News reports:

Traders also added to wagers the euro will strengthen against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission
showed on Sept. 7.

Read More: Euro Rises to Month-High Against Dollar on Growth, Rate Views

The Federal Reserve is expected to reduce US interest rates on September 18. This is in response to the growing credit issues within the country, as well as a weakening job market. The rate cut should spark a global reaction. Domestically, it has already increased the US dollar. Reports Forbes:

There remains downside risk for the US dollar, but the worst appears to be over unless there are more shockwaves from global stock markets, GFT senior finance analyst Ian Copsey said.

Read more: US dollar steady as traders digest weak jobs data, Fed rate cut seen

August reports show that the US lost 4000 jobs in one month. The biggest employment slump in several years, it appears that problems with the subprime market are affecting more people than ever. The dollar fell to a 30-day low after these reports went public. According to Reuters:

The euro vaulted to a one-month high of $1.3768 <EUR=> after the report before easing to $1.3751, up 0.5 percent. The dollar was down 0.8 percent at 114.42 yen <JPY=>, near a session low of 114.31 yen.

Read more: Dollar tumbles as August U.S. payrolls contract

The US dollar and euro did very well on Thursday, while the yen dropped in comparison. Investors, temporarily confident about the US mortgage crisis, have returned to riskier, higher yielding ventures. So, while Asian and European stocks are going strong, the yen will suffer until the next scare. Reuters reports:

Eyes are now turning to the European Central Bank’s interest rate decision. Expectations of a rate hike from the ECB have diminished since a credit market squeeze that has forced the bank to inject liquidity into the banking system. Most analysts now expect rates to be kept on hold at 4 percent.

Read more: Yen slips as risk appetite edges back

Interest rates in Canada remained at 4.5 percent today, resulting in a gain for the Canadian dollar. A statement made by the Bank of Canada showed that the nation’s economy is doing better than expected. Amid credit problems from the neighboring US, it seems Canada remains somewhat unscathed. Forbes reports:

‘Canadian bank traders see little in the BoC minutes to suggest that future rate hikes are in the works, after today’s ‘no change’ decision,’ said Peter Wadkins at Thomson IFR Markets.

Read more: Canadian dollar gains slightly after BoC decision

At Forex Blog, we like to keep up on the latest forex news by keeping tabs on other forex Web sites. Recently, our desire to stay on top of the latest forex news begged the question: which forex sites have the biggest reach? With nowhere to turn to answer this question definitively, we thought it would be an interesting exercise to rank all Web sites in the forex niche.

In ranking the top forex sites, our goal was to show — using objective data from reliable sources — which sites that are solely about forex are the most popular. To this end, we used data for these four metrics to calculate the rankings:

• — Google PageRank
• — Alexa Rank
• — Technorati Link Count
• — Compete People Count

Top 25 (see complete methodology below)

Rank	Site					Score
1	FX Street	6	10	10	10	36
2	Daily FX	6	10	10	10	36
3	Global Forex Trading	6	10	10	10	36
4	Forex Factory	4	10	10	9	33
5	Babypips	5	9	9	9	32
6	Action Forex	4	9	10	9	32
7	Forex News	6	9	9	8	32
8	CMS Forex	5	9	8	10	32
9	FX Solutions	4	10	7	10	31
10	Forex TV	5	6	10	10	31
11	Forex Markets	4	8	8	8	28
12	Global View	5	7	7	9	28
13	Finotec	4	9	8	6	27
14	Forex Directory	4	8	8	7	27
15	FX Words	6	6	6	9	27
16	Grace Cheng: Power Forex Trading	5	8	7	6	26
17	The Forex Project	4	6	9	7	26
18	Forex Blog	5	6	9	6	26
19	Forex Bastards	3	8	5	8	24
20	Secret Forex Society	4	8	5	7	24
21	Peter Bain: Forex Trading Commentary	3	7	6	8	24
22	MTI Forex Tips	4	7	7	6	24
23	Pip Trader	4	5	6	6	21
24	Forex Realm	4	5	4	7	20
25	Free Forex Charts	6	4	3	7	20

Methodology

To begin, we referred to an earlier post of ours, Top 100 Forex Resources, to gather an initial list of sites to rank.

For each metric, a score was assigned on a 0–10 scale. For Google PageRank, raw PageRank data was scored. For Alexa Rank, Technorati Authority, and Bloglines Subscribers, the Web sites were broken up into deciles. If a Web site was in the 0>10% decile, a 1 was scored; for the 10>20% decile, a 2 was scored; and so on, up to a 10 being scored for the 90–100% decile. If no data was available, a 0 was scored.

The overall score for each Web site is the sum of the scores of the four metrics. In the event of a tie in overall score, the tie is broken according to the Alexa Rank raw data.

Raw Data for Entire Set

Rank	Site
1	FX Street	6	7,252	15,114	31,817
2	Daily FX	6	12,991	3,350	50,605
3	Global Forex Trading	6	22,638	1,479	45,665
4	Forex Factory	4	5,385	1,085	8,726
5	Babypips	5	29,534	951	6,078
6	Action Forex	4	47,022	7,853	7,191
7	Forex News	6	54,775	745	3,939
8	CMS Forex	5	59,052	310	15,723
9	FX Solutions	4	28,263	207	160,374
10	Forex TV	5	195,082	1,247	15,380
11	Forex Markets	4	101,022	309	2,849
12	Global View	5	173,139	228	9,070
13	Finotec	4	37,691	346	1,016
14	Forex Directory	4	96,132	435	2,405
15	FX Words	6	213,487	183	5,082
16	Grace Cheng: Power Forex Trading	5	99,604	291	1,121
17	The Forex Project	4	210,968	466	1,392
18	Forex Blog	5	218,080	1,042	1,047
19	Forex Bastards	3	60,769	113	4,343
20	Secret Forex Society	4	102,413	110	1,871
21	Peter Bain: Forex Trading Commentary	3	112,319	126	3,341
22	MTI Forex Tips	4	119,283	261	1,045
23	Pip Trader	4	318,320	115	1,312
24	Forex Realm	4	442,474	72	2,153
25	Free Forex Charts	6	735,587	23	1,987
26	FX Power Trading Course	5	762,178	14	2,725
27	Earn Forex	3	285,271	891	0
28	Open Forex	5	522,180	433	0
29	Piptopia	4	283,227	95	0
30	Currency Secrets	4	319,276	74	0
31	Forex Reader	4	925,415	251	0
32	E-Forex	4	725,463	45	0
33	Forex Training	4	792,896	83	0
34	Forex Central	3	882,795	123	0
35	Ace Trader	3	183,248	4	0
36	Top 100 Forex Sites	0	353,883	158	0
37	Forex Predictions	3	1,019,283	33	0
38	Forex Trading USA	3	1,239,717	70	0
39	Scotia FX	5	2,771,289	14	0
40	FX HomeTrader	4	3,349,877	48	0
41	Learn4X	3	1,295,120	30	0
42	Forex Fibonacci	3	1,873,925	11	0
43	Forex Business	4	3,136,818	5	0
44	Info Forex	4	3,234,432	14	0
45	A Forex Loser	3	3,844,810	19	0
46	Forex Glossary	4	4,104,774	13	0
47	IFXTAG	4		29	0
48	Forex Planet	0	7,461,379	18	0
49	Forex Economic Calendar	0	2,340,539	3	0
50	My Forex Trading Tools	2	No Data	1	0
51	FX Quote	0	No Data	1	0

Credit problems in the US have been the source of much turmoil throughout the global markets in the past few months. Tuesday was good for the US dollar, which held strong against both the yen and the euro. However, forthcoming economic reports from the US may or may not tip the scales. According to Reuters:

"The panic is almost over, but the market has lost its direction and is waiting for more news, especially any good news," said Kikuko Takeda, a currency strategist at Bank of Tokyo-Mitsubishi UFJ.

Read more: Dollar drifts as U.S. data awaited for direction