The greenback neared an all time low yesterday against the EUR as the markets expectation that the Fed will cut interest rates continued to diminish. In Fed Chairman Bernanke’s speech in Berlin yesterday he did not make any direct comments regarding the Feds future monetary policy but he did mention that the Fed will do whatever is necessary to prevent the credit problems from spilling over into the broader economy. Majority of investors believed that the Fed will cut the interest rate by at least 0.25 % on September 18 but a lot of doubt has crept in recently and this is putting the greenback under pressure. Normally a rise in a countries interest rate has a positive effect on its currency as it will boost foreign investment, however with the current subprime crisis in the US coupled with global liquidity problems only a rate cut by the Fed will significantly relieve these problems and once again spur investment. In other news yesterday the US Trade Balance released at -59.2 B which was lower than the expected figure of -59.0 B. This gave further indication that the US economy is slowing and investors fear that if there is no intervention by the Fed to cut rates that the US economy will head towards a recession.
Today there is no market moving news to be released from the US, so we may see the dollar find some much needed reprieve after slipping against the EUR for five straight days. However the USD bearish momentum is strong, as the effects of the global credit crisis are most pronounced in the US and this is could significantly slow the economy. So today the greenback may continue to extend its losses all across the board and it could even reach a new all time low against the EUR.
No comments:
Post a Comment