Is Subprime The Trigger For The Dollar?

Although already mentioned in the press and in trading rooms in recent months, it seems that subprime may be dealing a bigger blow than expected. The US dollar bore the brunt of the force today as it was announced that Standard & Poor?s, the credit rating agency, may be cutting credit ratings on almost $12 billion on bonds backed by subprime mortgages.

The news sparked a market wide dumping of securities as concerns that the rating cut will have wider and bigger implications for US and global markets. And it will. With these rates cuts coming into the market, credit officers in every corner of the business will have to re-evaluate these assets, possibly enveloping the whole gamut of CDOs. Incidentally, the concern isn?t a new one as similar implications emerged following the Bear Stearns debacle just a month ago. Either way, it spells disaster for the US dollar as further fears of a weaker infrastructure are likely to exacerbate the already fragile state of the economy. Separately, Bernanke?s scheduled speech today was expected to lift dollar supporters in the afternoon. However, without really giving any directional bias on interest rates, the Chairman?s comments did little to boost greenback spirits.