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Dollar Plunges After Fed’s Surprise Rate Cut
By Grace Cheng on March 17, 2008 | More Posts By Grace Cheng | Author's Website
The US dollar is crashing, and this is no alarmist statement. The greenback fell sharply in the Asian trading session Monday against the Euro, Japanese yen and Swiss franc. In an extremely rare move, the Federal Reserve announced at the start of trading on the Tokyo Stock Exchange that they are slashing the discount rate (from 3.5% to 3.25%) on direct loans to commercial banks and is allowing securities firms to borrow at the rate as well. The Fed has also extended the maximum term of loans to commercial banks to 90 days from 30 days. Usually the Fed doesn’t make any weekend change in borrowing costs, and this move is the first since 1979. No wonder the forex markets are making such big moves now. Since the Fed deems it so urgent to make this emergency decision, then surely they know that things are much much worse than they look on the surface. However, instead of boosting the financial markets with confidence with this move, it is having a negative effect.
Emergency Meeting With Bush and Paulson
According to UK Independent, Fed Chairman Bernanke will hold an emergency meeting with President Bush and Treasury Secretary Paulson today before he decides how large an interest rate cut is needed to restore confidence in the financial system. The report said Bernanke was urged over the weekend to consider as much as a 100 bps rate cut when the Fed holds its meeting on Tuesday. There is now a good chance the Fed will cut the main rate by 100 bp on Tuesday.
Forex Trading
Stop-tripping action helped the EUR/USD rise 230 pips to a record high of 1.5910, with bulls eyeing 1.6000 next. USD/JPY fell 340 pips to as low as 95.70, the lowest since August 15, 1995. USD/CHF fell a massive 360 pips today to an all-time low of 0.9610. High-yield currencies like the Australian, New Zealand dollars and British pound fell against the US dollar on more carry trade unwinding. If you have shorted as soon as the above news came out, you would have made a good profit for the day or even the month.
Monday:
Japan leading economic index 0500 GMT
Swiss retail sales 0815 GMT
Eurozone employment 1000 GMT
US current account, Empire manufacturing 1230 GMT
US TICS 1300 GMT
US industrial production 1315 GMT
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Bernanke likes to make history