Dollar bears may dominate now

Unless you have been living under a volcano, you should know that the Fed has put rates on hold at 5.25% after all. Did that trigger lots of buying in the stock markets? In fact, yesterday the Dow lost 0.9% while Nasdaq closed unchanged. This is unsurprising given the current global concerns about the rising oil prices and the US economy in the near future. Why is the current US sentiment weak? (applies to stocks and currencies)

It seems that the market is now in the process of pricing in the cumulative effects of a decelerating economy which still has to bear the brunt of the recent consecutive hikes of interest rates. The fact that the Fed has left rates unchanged shows that even Bernanke and co. are more worried about the economic outlook than the underlying inflation pressures.

The futures market has now only priced in 22% of a rate hike to 5.5% on Sept 20, down from 71% two days ago.

As for currency traders, keep your eyes peeled to the US Trade Balance release today at 1230 GMT (8:30pm Singapore Time). The old problems of trade and budget deficits are soon to haunt the market sooner or later, now that the interest rates are slowing fading behind the scene.

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