The forex market is the largest financial market

The forex market is the largest financial market in the world, trading around $1.5 trillion each day. Trading in the forex is not done at one central location but is conducted between participants through electronic communication networks (ECNs) and phone networks in various markets around the world. The FOREX market is considered an Over The Counter (OTC) or ‘interbank/inter dealer’ market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
Currency is also needed around the world for international trade, as well as by central banks and global businesses. Central banks have relied on foreign-exchange markets since 1971 - when fixed-currency markets ceased to exist because the gold standard was dropped. Since that time, most international currencies have been “floated”, rather than pegged to the value of gold.

U.S. Economy Affecting International Currencies.

The downward spiraling condition of the American economy is causing concern on an international level. During late-morning trading in Sydney, Australia, the dollar was mixed against other currencies before any interest rates decisions were passed down by the major central banks of the world and the G7 meeting that will take place in Washington, D.C., later this week. Unfortunately, the pressure on the exchange rates is still moving things downward. Many nations are not trusting of the questionable economy of the United States.
Foreign exchange companies and worldwide banks are feeling the pressure of the lousy American housing market and they are beginning to voice concerns that the ‘economic malaise gripping the US’ is starting to spread to other countries. The dollar was down against the Yen and the Euro when trading closed on Tuesday, April 8, 2008, losing anywhere from one third of a cent (against the Euro) to thirteen cents (against the Yen).
The Federal Open Market Committee released their meeting minutes to the international trading community on March 18 and the report did not help reassure the world community. The state of the American dollar is causing people to fear a very long and debilitating recession. Some held hope, though, that by cutting interest rates across the board could help limit the currencies weakness or maybe even stop its downward progression.
The dollar’s weakness is causing other international currency to be under the same amount of pressure. The British Pound Sterling has suffered thanks to the American housing crunch and many government officials fear that the housing problem will slip across the Atlantic and begin to affect them. In an effort to forestall such a financial crisis, the Bank of England plans to cut some of their country’s interest rates and the exchange market is already adding more cuts to their pricing in anticipation of the United Kingdom’s central bank decision.
The Euro is also down and analysts who are watching the housing market crisis in the United States are waiting to see if it spreads first to the United Kingdom and then in Europe. Until there is some positive indication that this is happening, marketers are concentrating on the British interest rate cuts and Friday’s G7 meeting. The exchange markets are forcing the dollar to consolidate in an effort to keep the exchanges from going to outrageous ranges.
The Bank of England interest rates cuts are to be by a quarter of a percentage point, making it 5.0. The European Central Bank is planning to keep their rate at 4.0 until they see what inflation pressures do to growth prospects. The Bank of Japan is not planning on changing their key rates at all, keeping it a 0.5 percent.