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Video for March 17th, 2008 (3 min 29 sec): Dollar and Pound Fall as Credit Market Woes Force Acquisition of Bear Stearns JP Morgan Purchases Bear Stearns, Fed Cuts Discount Rate On Sunday, JP Morgan announced its planned purchase of Bear Stearns at $2 a share. Also, the Federal Reserve, in an emergency move, cut its rate on direct loans to commercial banks, by 25 basis points to 3.25%. The combination of these news events sent the Dollar reeling in Sunday trading. EUR/USD - Hits New Record High Then Retreats
The Euro-Dollar pair climbed more than 200 pips from its open on Sunday, setting a new record high at 1.5903. It then retreated in European trading, falling 200 pips off this high, and then proceeded to trade in a range around 1.5750 during NY trading. USD/JPY - Steep Fall At Sunday Open
The collapse of such a big Wall Street name is a shock to the beleaguered US financial system. The news reverberated around the world, increasing risk aversion. The Japanese and other Asian stock markets fell between 3 and 5% and European markets were down as well. The Dollar-Yen pair fell 325 pips to set a low below 96, and then recovered to trade in a range near 97, a drop of 190 pips from the week's open. GBP/JPY - Risk Aversion Sinks Pound, BoE Acts to Inject Money
The pound-yen fell from the 200 level to 192.50 during Sunday trading, a change of 750 pips. The steep fall is a sure sign that investors continued to unravel carry trade positions. After recovering some in NY trading, the pair is down 600 pips as of 2:15 pm eastern standard time. GBP/USD - Pound Falls To Dollar As Investors Wary of Credit Risks to UK
Looking at the Pound-Dollar, we see that the pound stumbled here as well. It is down 380 pips since Friday's high near 2.04. The reason for the fall is that the UK economy faces similar risks to its financial sector as the US. The Bank of England, sensing that credit costs had tightened up, made 5 billion pounds available for short term lending on Monday. USD/CHF - Breaks Parity, Falls 300 Pips
The Swiss Franc broke parity with the Dollar and fell 300 pips to set a low near .9635, though the pair recovered overnight and during the NY session. The Swiss Franc is benefitting from its status as a "safe-haven" destination. SWZ Retail Sales at Annual Pace of 1.3% The Swiss economy saw the annual pace of retail sales edge up slightly to 1.3% in January. Expectations were for a higher increase. US Empire Manufacturing Index Hits Record Low The NY Empire Manufacturing Index plunged to a new record low of -22.2 in March. This is unwelcome news for the area covered by the NY Federal Reserve. Expectations were for an improvement in the indicator. The NY "Empire" Index is one of the timeliest indicators and suggests that the manufacturing sectors is sliding into recession US Industrial Production Contracts 0.5% Meanwhile, Industrial Production in the US for February was down 0.5%, a larger fall than expected by economists. It's the first time production is negative in 4 months. Also, capacity utilization, which measures the proportion of plants in use, fell to 80.9%, the lowest since November 2005. All signs are pointing to the fact that the US has already entered a recession. US TIC Flows Mixed Foreign flows into the US were mixed, with long term flows increasing, but total flows dropping sharply. Upcoming Releases Overnight, Switzerland will post its industrial production data and the UK will provide its consumer and retail price indexes. Tomorrow morning Canada unveils its CPI, while the US releases its Producer prices. Also, the US will post housing starts and building permits for February. Finally, all eyes will be on the FOMC which is set for an aggressive interest rate cut: as much as a full point, to make the key rate 2.00%. |
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