eur fundamentals

Currencies Continue to React to Fed's Emergency Rate Cut

Thursday, 24 January 2008 20:55:36 GMT  |  Kathy Lien and David Song, DailyFX.com

The USD continued to take a hit as the unexpected rate cut by the Fed led to a big gain for commodity currencies, and rallied speculation that the depreciating currency will continue to fall for the sixth consecutive year.  Most of the major currency counterparts gained in today’s trading session as the Euro hit $1.47, and the Sterling climbing to $1.97. The USD/CAD pair reflected the biggest depreciation as investors took advantage of the spread in interest rates, and fell to C$1.0094 from C$1.0241 yesterday, which was the largest one-day gain for the Canadian dollar since November.

The newly released economic indicator by the Labor Department reflected a slowdown in the rate of unemployment, but did not help to move the market as sales of existing homes fell to a nine year low. As the US continues to falter in the global economy, commodities soaked in gains as crude oil rebounded from a three month low and was just shy of $89 a barrel. Gold prices also jumped as it hit over $900 an ounce as investors sought an alternative investment to the depreciating currency.  

Volatile trading continued in the securities market as the DJIA and the S&P500 had a second consecutive intraday reversal in today’s session, with the Dow climbing 107 points and the S&P gaining 13 points by the end of the trading session. The reversal was led my Microsoft, who is expected to release an upbeat statement on their earnings, and Xerox Corp., Lockheed Martin Corp. and Union Pacific Corp. also led the market as their earnings report beat market expectations.

Treasuries prices were sent downhill for the second day as the securities markets advanced, and lifted the 10- year yield to 3.636 percent and the 30-year yield to 4.354 percent. The huge rate cut and the newly introduced rebate by the Bush administration is also seen to have a negative effect on treasuries as profit driven investors reallocated their assets into higher risk assets. However, the $7.1B fraud involving Societe Generale sparked risk adverse investors to move into the safe haven of risk-free bonds as prices were falling.

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