Mixed sentiment swayed the US dollar as the Fed lowered growth forecasts for the economy – signaling the central bank’s willingness to cut key rates once again. As a result, the US dollar fell against all of the commodity currencies as investors looked to higher yielding assets. Among the European currencies, the euro remained relatively flat as the pair held near 1.57, while the British pound plummeted against the US dollar as market participants begin to price-in a rate cut by the BoE. The lower yielding Swiss franc and Yen also posted minor losses as the currencies closed at 1.013 and 102.6, respectively.
Bearish sentiment stalled the stock markets as the Fed reiterated the downside growth risks for the economy, with Washington Mutual making agreements for a $7B infusion to cover losses from the subprime mortgage crisis. As a result, the DJIA fell 35.99 points to 12,576.44, with AIG and Bank of America posting the biggest losses out of the big 30. Among the broader indices, the S&P500 shaved 7.00 points to 1,365.54, with 94 shares hitting a new 52 week low.
US Treasury prices accelerated as risk adverse investors moved into the safe haven to risk free bonds, but the rise in long term bonds were short lived as speculation of another rate cut by the Fed sparked inflationary fears. As a result, the benchmark 10-Year yield jumped to 3.564 percent from 3.556, while the 2-Year yield dropped to 1.884 percent from 1.948.
Looking ahead, we expect volatility in the currency markets to start picking up tomorrow as we await the Bank of England and the European Central Bank’s rate decisions on Thursday. We also forecast volatile price actions to carry on well throughout the day as Fed Chairman Bernanke is scheduled to speak on Thursday at 17:00 GMT.
[I]Check out additional resources dedicated specifically to Minutes of the FOMC Meeting[/I]