The US dollar was mixed versus the majors on Wednesday amidst global central bank rate cuts early in the morning, including a 50 basis point reduction to the fed funds rate.
This was the first unscheduled rate cut since January 22, and while we had been anticipating an impending easing of monetary policy following Fed Chairman Ben Bernanke’s comments on Tuesday, the coordinated effort between the Fed, European Central Bank, Bank of England, Swiss National Bank, Bank of Canada, People’s Bank of China, and Sweden’s Riksbank was completely unprecedented. So what kind of impact did the move have? Actually, not much. The US dollar ended the day up against the British pound and commodity dollar while edging back versus the euro, Swiss franc, and Japanese yen. The most disappointing reaction, though, was in the stock markets as the DJIA ended the day down 189 point while an apparent lack of confidence in government debt led Treasuries to sell off as well. The Fed and other central banks have really been pulling out all the steps in the hopes of firing a single silver bullet that would help to calm the money markets, bring skyrocketing overnight interest rates down, and put a floor under the falling equity markets. Unfortunately, this coordinated effort has not done the trick, and it’s worth wondering if Mr. Bernanke has anything else up his sleeve. Beyond the expansion of the Fed’s lending facilities and a 25bp rate cut at the end of the month, the markets will likely only be able to pin their hopes have to rely on something fruitful coming from the implementation of the Treasury’s $700 bailout bill. For US dollar traders, this makes using technical levels all the more important since jittery market sentiment leaves currencies prone to high volatility, and in that environment, forex market movements do not necessarily follow the logic of fundamentals on a day-to-day basis (as we saw last Friday with US non-farm payrolls). Related Articles: Fed Expected To Ease Further Despite Global Rate Cut, FED, ECB, BOE, and BOC Join Forces In Coordinated Rate Cut Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.