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Dollar sheds post Fed gains
Thomson
Financial
Tuesday, March 18, 2008
The dollar has shed most of yesterday's gains in the wake of
Wall Street's sharp rally following the US Federal Reserve's decision
to lower its benchmark interest rate by three quarters of a percentage
point to 2.25 pct.
After the Fed's rate cut, which was slightly less than the market
consensus for a full 100 basis point reduction, the Dow Jones
index of leading US shares enjoyed its best day in five years,
helping the US currency to rally too. The euro fell down towards
the 1.56 usd mark while the dollar climbed back above 100 yen.
'This rally hasn't been sustained and there's already a bit of
a hangover after yesterday's celebrations creeping in,' said James
Hughes, analyst at CMC Markets.
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'It's going to be a case of simply sitting back and seeing just
how far the major crosses do unwind now and whether there is any
net effect of the rate news, but so far saving that quarter percent
for a later cut is looking as if it may be little more than a
very brief shot in the arm,' he added.
The Fed's accompanying statement proved to be more hawkish than
many had expected. It showed that the Federal Open Market Committee
(FOMC) was divided, with two of the ten governors favouring 'less
aggressive action.'
The Fed also indicated that it was giving increased attention
to elevated inflation levels, thereby signalling that an end to
the current rate cut cycle was fast approaching.
Antje Praefcke, currency strategist at Commerzbank Corporates
& Markets, said the Fed's stance is unlikely to comfort markets
for too long, given the ongoing uncertainty in credit and financial
markets, despite good quarterly results yesterday from Goldman
Sachs (NYSE:GS) and Lehman Brothers. (NYSE:LEH)
'It will take months before light is expected at the end of the
write downs and revaluations tunnel and the flight into quality
is likely to continue for the time being,' said Praefcke. 'Therefore,
we think that the Swiss franc and the yen as well as the euro
will push higher against the dollar.'
Analysts said renewed concerns about the credit crisis and the
related economic damage are likely to set in again soon
Elsewhere, the pound will be in focus this morning when the Bank
of England releases the minutes to the last meeting of the rate-setting
Monetary Policy Committee and the statistics office releases the
latest labour market report.
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INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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