On Macro Economics

Written by Research | 10 May 2009

Defining market conditions either by political policies made by government to meet the ever changing market environmnet influenced heavily the fundamental factors of a bad economy like the present situation which started by the real estate housing bubble and the increasing unemployment figures. 

This is a clear case example that transpired with Lehman Brothers. Whereby using leverage derivative swaps on default by these institution has been used by hedge fund traders and managers to protect themselves with investment exposures that Lehman Brothers were involved in. It had such a ripple effect in the financial industry in itself and triggereda massive sell-off. These investment banks where practically at the mercy of creditors and other lending institution which led the cost of insurance for defaults much higher than they use to be. On the technical side of this scenario are the money managers who contributed to the downfall of some companies stock values in the market and this is in anticipation of an expected downgrade by rating agencies.

This was done as a matter of speculation as well by a handful of professional money managers have done some serious damage and somehow contributed to the entire situation. Prompting the treasury of the United States led by its secretary to ask congress to have control and oversight of the derivatives market. This is a good approach and with  stocks making a recovery worldwide that also contributed to the economic conditions currently that led the US dollar to further move higher than its normal cycle. Although some expect a recovery due to the easing of the economy as other economist sees it.

The performance cycle of the US Dollar can be best measured in terms of a monthly and yearly chart that will show how the movements of the dollar compared to the other major currencies have been affected. The overview on the economy has affected the performance of the dollar. Fundamentally the negative outlook would dampen the interest of major investors towards the value of the dollar. To be able to define the extent of the damage that this can cause on the value of the dollar versus the other major currencies and how far it can go will be the defining factor in the equation. Although, in the next series that followed; the US dollar became a safe haven for some investors that also led the market in a gradual decline in prices.