Today, all the financial news is about thing: Bank nationalization. Speculation is running rampant that Citi and Bank of American may both be nationalized. And FX360 is right there with some analysis of the situation. Kathy Lien points out that the main emotion felt right now is fear:
The rally in gold 
prices tells us one thing and one thing only, which is that the fear
has returned to the market. There is currently a lot of speculation
that Citigroup and Bank of America could be nationalized by the US
government. Although this would drive equities lower, it could also
trigger capital flight out of the US dollar.
There is concern that the value of the U.S. dollar won't be able to hold in a world where the government is further encumbered by bad assets -- this on top of the crazy amounts of debt being racked up.
But that fear may be unfounded. While the U.S. dollar would retreat in forex trading for the short-term, Boris Schlossberg points out that Citi could turn out a valuable asset for the U.S. government:
The initial reaction to nationalization may continue to prove dollar
negative, but we find the argument of dollar bear dubious at best.
Under nationalization Citi equity and bondholders would be the ones to
suffer the most, while the US taxpayer could in fact profit in the long
run if the US government were to pick up all of Citi’s global
infrastructure at pennies on the dollar and then recapitalize that
asset ultimately creating value.
What is clear, however, is that the U.S. dollar is retreating right now in forex trading. Perception is everything, and many Americans recoil at the idea of bank nationalization. And for good reason. Look what happened to the U.K. pound after the British government nationalized Northern Rock. But, on the other hand, the sterling is on the rebound (finally). Although Northern Rock probably has little to do with the pound's newfound strength.
At any rate, for now, it is quite likely that some dollar weakness is ahead in currency trading.
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