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Foreign exchange market

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JPMorgan, UBS, Barclays, Citigroup and RBS have been fined $5.7 billion in the US for charges including manipulating the foreign exchange market.

Four of them – JPMorgan, Barclays, Citigroup and RBS – have agreed to plead guilty to US criminal charges.

UBS will plead guilty to rigging benchmark interest rates.

Barclays was fined the most, $2.4 billion, as it did not join other banks in November to settle investigations by UK, US and Swiss regulators.

The bank is also sacking eight employees involved in the scheme.

US Attorney General Loretta Lynch said that “almost every day” for five years from 2007, currency traders used a private electronic chat room to manipulate exchange rates.

Their actions harmed “countless consumers, investors and institutions around the world”, Loretta Lynch said.Five banks fined over forex rigging

Separately, the Federal Reserve fined a sixth bank, Bank of America, $205 million over foreign exchange-rigging. All the other banks were fined by both the Department of Justice and the Federal Reserve.

Regulators said that between 2008 and 2012, several traders formed a cartel and used chat rooms to manipulate prices in their favor.

One Barclays trader, who was invited to join the cartel, was told: “Mess up and sleep with one eye open at night.”

Several strategies were used to manipulate prices and a common scheme was to influence prices around the daily fixing of currency levels.

A daily exchange rate fix is held to help businesses and investors value their multi-currency assets and liabilities.

Until February, this happened every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix, or just the fix.

In a scheme known as “building ammo”, a single trader would amass a large position in a currency and, just before or during the fix, would exit that position.

Other members of the cartel would be aware of the plan and would be able to profit.

The fines break a number of records. The criminal fines of more than $2.5 billion are the largest set of anti-trust fines obtained by the Department of Justice.

Meanwhile, the $925 million fine imposed on Citigroup by the Department of Justice was the biggest penalty for breaking the Sherman Act, which covers competition law.

The guilty pleas from the banks are seen as highly significant as banks have settled previous investigations without an admission of guilt.

The Attorney General warned that further wrongdoing would taken extremely seriously: “The Department of Justice will not hesitate to file criminal charges for financial institutions that reoffend.

“Banks that cannot or will not clean up their act need to understand – it will be enforced.”

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USD has been noticing a continued spike in the last week, especially so for the most traded pair EUR/USD. The rise of the USD has been a basis of conjecture for many analysts who have seen the currency being debased in the last five years and still continues to rise at an astronomical rate. In the last two years, U.S. Dollar index is up by 10% as compared to the other top currencies of the world. Read more on anyoption for details regarding the strengthening dollar and its impact on the Eurozone.

The strengthening of the US dollar in the last few days has been initiated by European Central Bank when they slashed the interest rates on June 5th. The president of ECB further informed that the interest rates will remain low for some time now. The governor of Britain, Mark Carney, also said that the British economy is too weak to fiddle with the benchmark rate of interest which was implied by the rise in long term bond yields. The other thing that supported the dollar was the 2.1% increase in the Consumer Price Index which did not hit the downward spiral despite the inflation. The increased cost of CPI has been attributed to 3.3% rise in the gasoline prices which has been the largest gain since last year.

What the experts explain is the main reason for the rise of US dollar is that it is the reserve currency of the world. The majority of nations use dollar as the currency to buy commodities such as oil which keeps propelling the US economy towards betterment. The monetary stimulus of the Federal Reserve can take the credit for keeping the dollar strong against other currencies. However, it has been speculated that when the stimulus weakens or ends, it can have strong impact on the currency.

With the dollar at an all time high, the vacations to US will be affected as it will be pricier than usual. The immediate spur of the rising dollar has been pointing towards the Federal Reserve’s purchases of the bonds that have been bought using the freshly minted currency. The quantitative easing has already augured well for the long term interest rates with yields rising to a 2.6% from the downward low of 1.6%. When the yields show an upward trend, it attracts more capital investments in America from other parts of the world which propels the dollar towards growth.

The deeper insight into the upward trend of the dollar can be seen in the overall health of the economy of America which is currently in a good shape. With housing market on recover mode, bad mortgage debts wiped out of the system and opportunistic job market with 195,000 employees added to the non-farming sector is a big boost to the economy. Despite the holistic growth, GDP has remained modest and will strengthen a bit in the coming days.  As per the IMF projections, the American Economy is expected to grow at a 2.7% rate next year. Even though this is not a classic improvement, but as compared to the other economies of Japan and Britain are not likely to do this well and with Euro zone still in the recessionary phase will keep America at the top.

The transatlantic gap in the interest rates of the both the markets are expected to rise as the monetary policies of America and Europe become clearer. With this trend, the dollar will rise further.

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