Jameel Ahmad discusses forex and issues like US$ peg and global events

Foreign-exchange markets (forex) are a mystery for the common man: and for the business world, its gyrations dictate their budgets; sometimes their prosperity. We are living in a world where every day currency fluctuation affects our life. Jameel Ahmad – Vice President of Corporate Development and Chief Market Analyst at FXTM discusses about forex and issues like US$ peg, and current global events.

Please explain to our readers about the daily foreign exchange markets. Who are the participants? What is the size of Forex market? Who are the biggest entities involved in Forex trading?

The foreign exchange market customarily known as forex involves the trading of one currency for another at an agreed price on the over-the-counter (OTC) market. This is the largest and most traded market in the world, running 24 hours a day over 5 days of the week, with over $5.3 trillion of transactions turned over on a daily basis.

Participants range from central banks who monitor the value of their own currency, to commercial banks that trade currencies or offer other exchange services in specialised departments. There are also other participants involved in the forex markets, which include investors and speculators who attempt to benefit from the constant movements in price on the currency markets. One of the attractions of the forex market is the decentralized structure that allows high levels of liquidity. When you combine this with recent technological advances around the world that is making forex trading more accessible to a wider reach, the popularity of forex trading is continuing to grow.

In which currency pairs are the retail traders in GCC most active?

Traders around the GCC are enthusiastic investors, and we see the EURUSD, GBPUSD and USDJPY as being the most popular pairs for traders in the GCC region. With that being said, traders in the GCC are not just active in currency pairs, with both Gold and Oil being extremely popular commodities to trade.

What is your view on GCC economies?

2016 is going to be an interesting year for the GCC economies, with economies around the region being reliant on oil-exports and the price of oil having crashed by 80 pc since its peak around June 2014.

All economies that are reliant on oil exports around the globe are vulnerable to entering a weaker period of economic growth, therefore headline attraction should not just be focused on the GCC region. What I would continue to monitor however is how government revenues around the GCC might be impacted by the lower price of oil, and whether this encourages some capital outflow from investors.

One possible area of concern for investors right now is the ongoing headlines around the possibility of GCC nations possibly dropping their US$ peg in the future. I personally think that the chances of this occurring are low still at present, but it is a potential risk that investors need to monitor. If a currency peg was removed, this would most probably bring high levels of volatility to local stocks markets and would make it more possible that we would see capital outflow.

How do you see the issues regarding central banks’ unconventional strategies in recent years? How do you view the negative interest rate scenario now introduced in countries like Japan?

The extended period of monetary policy easing from global central banks appears to be never-ending! Unconventional strategies like QE are still being adapted by some central banks like the ECB (European Central Bank), but questions are continuously being asked regarding whether they are effective.

In regards to negative interest rates being recently introduced in Japan, I see this as a clear attempt from the Japanese central bank to encourage banks to lend in the hope that consumers will borrow and spend. The reason for this is because the Japanese economy has been plagued by notoriously low inflation readings for an extremely long period of time, and the central bank are clearly hoping that this will have a positive impact on headline inflation.

What is your opinion on GCC countries’ US$ peg? Is it good for them to have a costly currency in times of economic downturn?

This is a very interesting question and I think that the Dollar peg in general is an interesting topic for discussion! The way I look at it is that with many currencies around the region being pegged to the Dollar, the local equity markets are also in some ways protected from losses due to less currency exposure. For example, both the Indonesian Rupiah and Malaysian Ringgit are also prone to equity market weakness when their currencies are dragged lower.

GCC equity markets on the other hand do not suffer from the same level of fragility, however they are of course vulnerable to losses with these economies having an economic reliance on the price of oil.

My personal viewpoint is that if the GCC economies are entering a period of slower growth due to the price of oil, they could actually use the stronger US$peg to import products from overseas and boost economic productivity. As we have seen from the recent decline in growth from China, this is not a long-term solution but it might help protect GDP growth for some GCC economies in the shorter-term as their economies slowly adapt to a lower price of
oil.

Kindly explain about FXTM’s plans for 2016?

2016 is set to be a year is full of exciting developments for FXTM. We are expanding our global reach into new markets both in Asia and in Europe, where we continue offering our clients localized products and services tailored to their needs. One example is the ForexTime App which was launched in late 2015, which is also available in Arabic. We will launch a series of new and innovative products developed by our highly skilled R&D team, who closely monitor market trends and client’s needs.