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Home » Online Forex Trading Blog » US Recession Nearing Its End?

US Recession Nearing Its End?

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bernankeFederal Reserve Chairman Ben Bernanke gave hope to the struggling banking sector, retailers and stock market when he predicted that “there is a reasonable prospect that the current recession will end in 2009”. Confidence was further boosted when he told Congress that policymakers don’t want to nationalize banks. He was also quoted as saying that 2010 may be the year of recovery.

Although he acknowledged that his forecast could be wrong if the economic crisis is sustained, the financial market welcomed his statement by rebounding after 11-year lows. The Dow Jones industrial average grew by 3.3% or 236.16 points to 7,350.94.

Meanwhile, the Standard & Poor’s 500 index and the Nasdaq recuperated their losses the day before Bernanke’s statement. The S&P gained 4% or 29.81 points to 773.14 even as the Nasdaq composite grew 3.9 percent or 54.11 points to 1,441.83. Despite these gains, investors are still worried that the rally can only be sustained over the short-term.

Read the full details of the Semiannual Monetary Policy Report to Congress at the Federal Reserve Website

Currency Market Reaction to an End of the Recession

For most people, the value of the US dollar should matter. One way or another, every person in the world will feel its impact but Americans are particularly vulnerable to USD fluctuations. Over the past year, the dollar experienced a downward trend because of gloomy economic conditions. The Dollar Index, which is traded on ICE futures, tracks the USD against the six of the country’s largest trading partners. It reveals that the dollar has fallen 15% this past year. This is a significant move in currency trading markets.

After Bernanke’s announcements, the dollar rose to 96.91 yen from the previous 96.70 yen. It also continued its advance on the euro as it grew from $1.2763 to $1.2812. It is believed that in times of economic crisis, investor’s first reaction is to turn their stocks, bonds, and other types of securities into the dollar. This may have aided the growth of the dollar in the past several months. Only time will tell if the currency becomes stable enough to rebound against other currencies.

Is It Possible for the Recession to End in 2009?

Almost every day, people are bombarded by news that the economic readings improved or declined by some small amounts. But these readings don’t tell consumers what they really want to know, is it possible to end the recession in 2009, 2010 at the most? It is important to look at macro-economic data indicators to answer this question:

  • html-for-foodUnemployment Levels – as of last week, the number of unemployed people that are cashing in on unemployment checks exceeded 5 million. To put this number in perspective, lining up these 5 million people will stretch 1,908 miles. That’s about the same distance between New York City and Disneyworld in Orlando, and back again. It sounds dismal but it can actually be a good thing because as people discover they cannot get their old job back, they become more willing to work on another field. They get back to work and spending will be restarted.
  • Oil Prices are stabilizing – historically, oil prices were very volatile. During an economic downturn, they only go in one direction – down. But as the demand increases (companies still need to replenish their stocks), the price of oil may not necessarily go up, but it is likely to stabilize. On the other hand, if there’s no recovery, oil prices will fall further.
  • IPO Market is Recovering – the two main reasons why companies go public include: generating capital for expansion and owners who want to cash out. Companies typically go public when they can get a good valuation. When businesses start to take risk by sacrificing a larger stake in the company by issuing more shares, it is a sign that economic recovery is underway.
  • Customer Confidence – the better-than-expected earnings from large retailers including Macy’s Inc, Home Depot, and Nordstrom provides a ray of hope that confidence and spending is stabilizing. Although the year-on-year basis for retailers still leaves much to be desired, improvements still remain as a good sign for retailers and the whole economy in general.

Consumer Reactions to the End of the Recession

Bernanke’s forecast that the recession can end in 2009 is greeted with mixed reactions. The chief financial economist from the Bank of Tokyo, Christopher Rupkey, believes that the statement was “awkward” because the job-loss is still continuing in some segments. According to Abiel Reinhart, an economist at the JPMorgan Securities, “the labor force is now having a more difficult time returning to employment.” He further notes that a large number of people may completely leave the labor market.

On the other hand, there are also some who welcomed the Fed announcements. As was analyzed earlier, the financial market was happy with Bernanke’s assurances that recovery was underway if an aggressive policy is adopted. The retail industry was also offered a glimmer of hope with these statements.

About the Author -

Rebekah started in the Forex industry as an intern in 2001, and worked her way up the ranks to a C-level management position. She enjoys the field of trading as well as MMA fighting, shooting ranges, and action movies.

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