Oct
30
2008
In a move anticipated by most market analysts, the Federal Reserve cut target lending rates yesterday to a level not seen in almost 50 years! This was done in an attempt to prevent a widening financial crisis from tipping the U.S. economy into a prolonged recession. It was not the first time the Fed cut rates to stave off further economic disaster during these most recent times of financial hardship.
Less than a month ago the Fed joined the European Central Bank (ECB), as well as other counterparts from the U.K., Canada, Sweden and Switzerland, in a coordinated reduction of interest rates, cutting its target rate by a half percentage point to 1.50%. Now, as a result of yesterday’s further rate cut, the Dollar posted its biggest one-day fall against almost all of its major currency counterparts.
The Dollar was already beginning to trade above $1.3200 per EUR in today’s early trading sessions, after dropping 2.2 % yesterday, and has also climbed above 1.6500 against the GBP. The Fed may also be expected to lower benchmark interest rates even further in the coming months given the downbeat economic outlook provided by the Fed’s policy statement yesterday.
The market has been trading on a recovery theme lately; there is still a lot of uncertainty, and risk aversion is very much in place. If risk appetite continues improving, the Dollar may get even weaker. Despite showing signs of recession in the U.S. economy, the Fed’s maneuver put the focus on the interest rate differential, and that might force the Dollar to go even lower no matter how the Advanced GDP figures appear when they are released later today.
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Forex Blog
Apr
30
2008
Yesterday, the USD gained against most of the major currencies on speculation the Federal Reserve will signal that it has finished lowering Interest Rates after 6 reductions since September.
The dollar traded at 1.5559 vs. the EUR at 6:10 a.m. in Tokyo, after rising 0.6% yesterday and touching 1.5541, the strongest rate since April 3. Futures on the Chicago Board of Trade show an 82% chance the Fed will cut the target rate for overnight lending by a quarter of a percentage point to 2% today and odds of 71% that the rate will be held at that level in June. Only a week ago, the USD plunged to a record-low against the EUR, boosting demand for raw materials as a hedge against inflation. Now, following the rising confidence in the US currency, commodities dropped the most in 5 weeks as a rally by the USD eroded demand for energy, metals and crops as alternative investments.
A stronger dollar will reduce some benefits for US exporters, but it could help curb inflationary pressures. Currency analysts attribute the greenback’s return from a historical low of 1.6017, mainly to short USD selling and profit-taking.
Fundamentally, the dollar is still weak. The majority of indicators reflect major weakness in the US economy. Today we expect heightened USD volatility to continue as the 1st quarter GDP figures are scheduled for release at 12:30 GMT. Gross Domestic Product figures may show that the US economy shrank in the first quarter while Friday’s jobs report is also expected to show payrolls fell 80,000 in April.
The ADP Nonfarm Employment Change and the Chicago PMI figures are also due to be released today. These market moving indicators are also forecasted to set a lower result in comparison to the prior month. A result below the expectation will probably produce bearish momentum for the USD, as it would be clear proof that the world’s largest economy is in a stage of contraction. On the other hand, a reading in line with expectations isn’t likely to spark much reaction as traders will be anxiously awaiting the FOMC decision as well as Friday’s Nonfarm Employment Change.
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Forex Blog
