The Federal Reserve said today that will create a Commercial Paper Funding Facility (CPFF) to help provide liquidity to term funding markets. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy. Initially, the stock market and high yielding currencies reacted positively to the news but then gave back most of their gains once investors decided to take profits ahead of Ben Bernanke speech on the economic outlook and financial markets before the National Association for Business Economics.
Fed Chairman Ben Bernanke opened the door to rate cuts during a speech on Tuesday, while a record decline in consumer credit suggests spending may fall signficantly through the end of the year.
We forecast that the US Dollar will see a short-term decline against the Euro, but our longer-term predictions continue to favor US dollar strength. The Dollar could nonetheless strengthen against the resurgent Japanese Yen and downtrodden British Pound.
Indications of potential Fed rate cuts weighed on the US dollar, but end to SEC's short-selling ban likely to be the big story on Wednesday...
Currency Strategist
Speculative COT positions remain extremely long USD while short EUR and GBP (in absolute and relative terms). Such readings usually accompany market turns.