Finotec News Archive - March 17 2008

FOMC meeting to set agenda for dollar

Investors have shown no confidence in the dollar, spiking gold prices above $1000 in a flight to safety

Raj Ratna
17 March 2008

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Credit market losses triggered the Federal Reserve to cut discount rates to 3.25% after an emergency meeting during the weekend. Speculation among traders spread as they increased bets the Federal Reserve will lower interest rates by a further 75 basis points on fears the US economy will meet a recession. The dollar fell to as low as 95.76 yen, the weakest in twelve years and $1.59 versus the euro. Analysts predict the dollar may fall to 95 yen this week.

The euro looked overbought against the dollar, rising over 3% last week. Eurozone industrial production was stronger than expected with the monthly increase coming in at 0.9% versus expectations near 0.4%. ZEW consumer sentiment for Germany was not as negative in March, assisting the dollar’s slide against the euro.

Investors have shown no confidence in the dollar, spiking gold prices above $1000 in a flight to safety. Oil prices surged as OPEC reiterated production quotas will not be increased in a bid to dampen prices. The Organisation of Petrol Exporting Countries has blamed speculators as prices ignored fundamentals of supply and demand. Traders said the ailing US dollar also has fuelled a spike in world oil prices because crude is priced in dollars and has become cheaper to buy for purchasers holding stronger currencies Crude prices were last seen flirting with the $111 mark on Monday.

Investor confidence fell, sending the US sharemarkets lower for a third straight week. Market analysts say that a combined effort by all central banks to buy the dollar back up is likely. Inflation came in at flat for both the headline and core; restrained by cheaper cars, gasoline, food and clothing. US treasury prices rose in response to the tame CPI result.

News regarding the sale of Bear Stearns Co’s to JP Morgan Chase & Co has made headlines Monday morning. The Federal Reserve and JP Morgan coordinated a liquidity injection for Bear Stearns, the fifth largest investment bank in the US. The takeover bid placed further downward pressure on the dollar. JP Morgan agreed to buy Bear Stearns for $240 million, about 90 percent less than its value last week.

This week we expect the dollar to bounce around with the major releases for the week. US Federal Reserve is expected to cut borrowing rates by 50 basis points, although they could opt for a 75 basis point cut to prevent housing problems getting worse. UK CPI is forecasted to come in at 1.4%, slightly ahead of the 1.3% anticipated. This should strengthen the sterling against the dollar this week after the Bank of England offered to inject £5b into the money markets on Monday.

Finotec Analysis Team
17 March 2008

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Today's Economic Events





Time Event Currency Period Previous Forecast Significance Actual
17:00NAHB Housing Market IndexUSDMar20.020220information
13:15Industrial Production m/mUSDFeb0.1%-0.1%2-0.5%information
13:15Capacity Utilization RateUSDFeb81.5%81.2%280.9%information
13:00TIC Net Long-Term TransactionsUSDJan56.5B60.0B362.0Binformation
12:30Manufacturing Shipments m/mCADJan-3.4%1.0%21.3%information
12:30New Motor Vehical Sales m/mCADJan4.8%6.2%18.2%information
12:30Current AccountUSDJan-179B-184b2-173binformation
10:00Employment ChangeEURQuarterly0.3%NA10.2information
08:15Retail Sales y/yCHFJan1.2%2.7%21.3%information

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