U.S. Federal Reserve Chairman Hints of Recession

On Wednesday April 2, 2008, the Chairman of the Federal Reserve Bank hinted that the United States economy may beheading towards recession in the first half of the year, but will rebound in the second half through 2009.  Despite this news, the U.S. Dollar firmed following good news coming from the labor market, which said that private sector jobs increased in March 2008 by 8,000 compared to 70,000 loss originally expected by economists.

The release of the better than expected report by the Institute of Supply Management (ISM) showed that sentiment improved in March 2008 to 48.6 compared to 48.3 in February 2008.  An ISM index figure below 50 indicates that the economy is contracting, and an ISM index above 50, shows that the economy is growing.  Economists were expecting the Index to decline to 47.5 in March.

The liquidity crisis has also hit most of the major banks in Europe and as a result, mortgage approvals increased by 73,000 in February 2008, compared to 74,000 in January 2008.  This confirms speculation that the credit crunch would force the Bank of England to cut interest rates to somewhere 3.5% by the end of the year.  The British Pound remained stable after the release of the U.K. housing data.  In London trading at 12:24 (GMT), Sterling against the U.S. Dollar was 1.9822, down from 1.9834 earlier.