Federal Reserve Needs to Continue to Cut Interest Rates (page 2 of 2)

With the Federal Reserve widening the range of acceptable collateral, banks have not been shy about tapping the discount rate window which indicates how troublesome the latest credit crisis has become. Tomorrow we have the final fourth quarter GDP numbers due for release; revisions are not expected.

Bank of England Still Expected to Cut Interest Rates

The British pound has extended its gains against the US dollar but it continues to underperform the Euro. Although there was no UK economic data released this morning, the market now believes that the Bank of England is on track to cut interest rates next month. In a testimony before legislators, King admitted that given current market conditions, the central bank is more predisposed to cutting interest rates even though they are in no hurry to follow in the footsteps of the Federal Reserve who has taken historic measures in an attempt to stabilize the credit markets. Bank of England member Sentence also reminded the markets about the difficult times ahead for the UK economy. He argues that although concerns for a recession are overstated, consumer spending should continue to weaken.

New Zealand and Canadian Dollars Pull Back, Australian Dollar Extends Gains

Compared to the beginning of the weak, the commodity currencies have taken a break as trading ranges narrow. There was no economic data released from any of the three commodity producing countries over the past 24 hours and even a sharp jump in oil prices has failed to lift the Canadian dollar. Only the New Zealand had news to report. Finance Minister Cullen continued to warn that the New Zealand economy faces serious challenges and is not immune from the global slowdown. These comments come ahead of the trade balance report which suggest that exports may have taken a hit in the month of February. Australia will also be releasing their leading indicators numbers tonight; no bit surprises are expected because even though global growth is slowing, the Australian labor market has been hot.

USDJPY Below 100

With both the US economy and Japanese economy weakening, USDJPY is back below 100. The trade surplus narrowed significantly in the month of February and we expect this trend to continue given the sharp appreciation of the Japanese Yen this month. Although this should help to reduce inflationary pressures, it will also take a big toll on the export dependent economy.