Just three months, who would have ever thought the US financial analysts would be discussing the pros and cons of partial bank nationalization?  Just mentioning the word "nationalization" would have brought scoffs and laughter in a capitalistic economy. 

That was then and this is now… 

The financial systems are continuing to have trouble and recording record losses as banks face growing toxic asset losses.  US housing prices continue to fall increasing the number of "bad" mortgages and exacerbating the credit crisis.  Corporations are reporting worse earnings than expected in all sectors. 

But the UK is facing even more severe problems than anything the US is experiencing.  The government has officially recognized the economy is in a recession and the news the calendar year 2008 fourth quarter contraction was 1.5% was disastrous news.  This represents the largest contraction seen since 1980.  A few days ago it was also announced the government would have to invest in the banking system and buy toxic assets on bank balance sheets.  The market did not receive the news well at all and the pound began a week long tumble. 

Fiscal policy in the UK is necessarily more constrained than those in the euro-zone.  The UK pound is not part of the coordinated market effort and is faring worse than the euro. The pound has weakened against the US dollar to $1.3870.  Of course, the euro has weakened also to $1.2998 when paired with the greenback.  At one point yesterday the euro had weakened as much as 1.8% to hit a low of $1.2765 against the US dollar. 

In the currency world, the yen is the other main focus of forex traders.  The yen strengthened against the euro, the UK pound, and the US dollar as investor fears about worsening economic conditions grow.  The yen showed strong performance against the US dollar and reached $.011273 dollars per yen.  On the trade-weighted index chart the yen is trending above the dollar and the euro is trending below both the yen and the US dollar.

Yesterday, the yen strengthened against the UK pound to reach 123.38 yen per pound.  It also rose against the euro to 115.59 yen per euro. 

The yen is gaining in response to investor demands for safe haven assets once again.  The prediction is that the yen will continue to grow stronger against other global currencies as long as the economic picture continues to deteriorate. 

The Russian ruble has weakened against the dollar to 3.0891 rubles per dollar.  The Bank of Rossii has increased the trading band and is quietly pursuing a policy of free float. 

Canada's currency weakened against the US dollar for the first time in several days.  It weakened to C$1.2547 per US dollar and the decline is expected to continue through today. 

One other currency getting attention is the Mexican peso.  The peso weakened significantly to 14.1935 pesos per dollar.  The Mexican economy is dealing with declining exports due to faltering global economies and especially due to fewer US orders.

Currency volatility is the talk of the market right now.  There is speculation there is enough concern to make it an agenda item at an upcoming G-7 meeting, but chances are the group will simply talk about how to stop the continuing economic downturns and how to keep banks afloat. 

One thing remains clear:  the economic crisis is far from over.