| 3/18/2008
3:30 PM: EUR/$..1.5690 $/JPY..99.35 GBP/$..2.0152
$/CHF..0.9968 AUD/$..0.9291 $/CAD..0.9921
FOMC Cuts 75-BP, USD Edges Up
The dollar regained some footing against the euro
and sterling after the FOMC announced its decision
to lower its benchmark lending rate by 75-basis
points to 2.25%. The Fed voted 8-2 in favor of
the cut with Board members Fisher and Plosser
favoring a less aggressive cut. In the accompanying
statement, the Fed reiterated that !°financial
markets remain under considerable stress, and
the tightening of credit conditions and the deepening
of the housing contraction are likely to weigh
on economic growth over the next few quarters!a.
The statement also addressed inflation, saying
it expects price pressures to moderate but uncertainty
for the outlook has increased. Nonetheless, the
Fed added that downside risks to growth remain
¨C committing it to !°act in a timely
manner as needed to promote sustainable economic
growth and price stability!a. Shortly after the
policy announcement, Fed Funds futures were pricing
in another 50-basis point reduction at the April
meeting to 1.75%.
US equity markets, which rallied sharply ahead
of the decision, maintained its gains, with the
Nasdaq and S&P both up by more than 3% and
the Dow Jones advancing by more than 2.5%. Additionally,
investment banks Goldman Sachs and Lehman Brothers
both announced better than expected earnings results,
albeit at sharp declines from the prior quarter.
Economic reports released earlier in the session
included building permits, which posted a sharp
7.8% drop in February from a 1.8% decline a month
earlier to 978k units and February housing starts,
which fell by 0.6% from 0.8% to 1.065 million
units. The producer price index revealed lingering
inflationary pressure with core PPI edging up
to 0.5% versus 0.4% and up 2.4% from 2.3% a year
earlier. The headline PPI number drifted lower
to 0.3% versus 1.0% month earlier and falling
to 6.4% from 7.4% in the previous year.
GBP Rally fades near 2.0270
The sterling!?s rally against the dollar stalled
near trendline resistance around 2.0270, potentially
forming a right shoulder in a head and shoulders
formation on the 4-hourly chart. Price action
suggests a move lower back toward the 2-level,
with a breach of this neckline paving the way
to a possible test of the 1.96-level.
Economic reports from the UK overnight saw inflation
figures, with CPI higher to 0.7% reversing a 0.7%
decline a month earlier and edging up to 2.5%
on an annualized basis from 2.2%. The retail price
index (RPI) firmed by 0.8% m/m and 4.1% y/y.
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