The Euro bounced off of fairly significant technical support, trading as many as 180 points off of lows to $1.3500 at time of writing. Forex traders likewise eased recent British Pound tumbles, with Cable erasing overnight losses to stay at $1.9822. A bounce in the forex carry trade made the Japanese Yen the only major currency to lose against the dollar, with the greenback adding ¥3.00 off of lows to ¥114.44.
The US Federal Reserve surprised markets by dropping its discount lending
rate by 50 basis points to 5.75 percent—a move said to forecast a more
significant Fed Funds Rate cut through its September meeting. In its surprise
vote to effectively ease monetary policy, the Fed said, “Financial
market conditions have deteriorated, and tighter credit conditions and
increased uncertainty have the potential to restrain economic growth going
forward. In these circumstances, although recent data suggest that the economy
has continued to expand at a moderate pace, the Federal Open Market Committee
judges that the downside risks to growth have increased appreciably.” Combined
with its recent injections of liquidity into Fed Funds markets, the central
bank made it very clear that it is concerned over recent developments in
domestic credit markets.
Fed Chairman Ben Bernanke seems
intent to soften the effects of lending market troubles on the broader
The Dow Jones Industrial Average rallied strongly on the news of interest rate cuts, adding nearly 650 points off of yesterday’s lows of 12,518.51. A later slowdown left the Dow a much more modest 147 points improved to 12,993. At the same time, the S&P 500 crossed into positive territory on a year-to-date basis, rallying 1.76 percent to 1,436.17. The NASDAQ Composite was similarly bid, up 38 points at 2,489.