Market News

The U.S. government took over the two mortgage giants, Freddie Mac and Fannie Mae, in an attempt to rescue the entire housing sector from total collapse as these institutions have guaranteed half of the $12 trillion in mortgage debt outstanding in the U.S. These two institutions have been experiencing liquidity crisis as a result of the sub-prime lending problems that has afflicted the U.S. economy over the past 18 months. As a result of this rescue, the U.S. Dollar surged to a one-year high against major currencies. Investors moved into higher-yielding currencies and shied away from currencies such as the Japanese Yen.

Despite trading higher early in the day, the U.S. Dollar lost ground versus the Euro, as a result of much worse than anticipated unemployment figures, which were released a short while ago. Prior to the release of the news by the U.S. Labor Department, the U.S. Dollar had been enjoying an 11-month high against the Euro, buoyed by traders buying up the greenback in advance of the release.

It is now obvious the economies in the euro zone are on the brink of recession and as a result, the European Central Bank (ECB) kept interest rates unchanged at 4.25%, a 7-year high, in order to fight inflationary pressures in the euro zone. Officials of the ECB policy makers met in Frankfurt today and decided to kept rates unchanged. This decision was predicted by most economists surveyed. According to analysts, the ECB will likely wait until the end of the first quarter of next year to decide whether or not to reduce interest rates.

On Wednesday, September 03, 2008, the U.S. Dollar continued its run of price increases, reaching its highest price in over 11-months against major currencies. The greenback’s rise continues as investors start to regain lost confidence in the U.S. currency, even amid a backdrop of worsening global economies.

The U.S. Dollar extended its 2008 highs against major currencies due to falling oil prices, and the expectations that global inflation would fall. The Euro dropped to a 7-month low against the U.S. Dollar, dropping below $1.45. Analysts have predicted a bleak economic outlook for the U.K. economy and as a result, the U.S. Dollar pushed the Pound Sterling to fall below $1.80, the lowest price since April 2006. The GBP also fell to a new record low versus the Euro and experienced a 12-year low versus a basket of major currencies.

After the release of some hawkish comments from a European Central Bank official, the Euro rebounded slightly, bringing to the fore again the possibility that the Euro zone could see a Arise in interest rates sometime in the near future. Klaus Liebscher of the European Commercial Bank Governing Council, and the outgoing governor of the Central Bank of Austria, commented that there was “no room for complacency” as regards both high inflation and interest rates in the Euro zone.

The U.S. Dollar gained slightly following comments from the European Central Bank president, Jean-Claude Trichet. Although investors expected the ECB to hold interest rates steady at 4.25%, the questions and answers session with the ECB president, which followed yesterday’s meeting, surprised few players in the currency market.

The U.S. Dollar weakened broadly today as foreign exchange dealers took profit they have made during the recent gains, ahead of major interest rate decisions from the Euro zone and the U.K. The Bank of England and the European Central Bank are expected to keep interest rates unchanged at 5% and 4.25% respectively. Investors will scrutinize Jean-Claude Trichet’s comments after the meeting to find clues on policy directions for the coming months.

The U.S. Dollar traded slightly lower while just off a 7-week high versus the Japanese Yen, due to falling oil prices, even though the Fed’s announcement to keep interest rates unchanged dampened expectations that interest rates would be increased any time soon.

Aided by a fall in the price of oil, which is trading near $119 a barrel, the U.S. Dollar reached a 6-week high versus the Euro, while investors wait for an announcement on the direction of interest rates, expected to be released by the Federal Reserve some time today. It is anticipated that the Federal Reserve will maintain the 2% interest rate, as the sluggish economy is tempering the need to adjust interest rates upward in an effort to tackle inflationary pressure.

The U.S. Dollar saw little movement in early trading today, having backed away from last week’s gains as a result of better than expected jobs data from the U.S. Meanwhile, traders eagerly await the outcome of this week’s meetings of the European Central Bank and the U.S. Federal Reserve Bank.

The U.S. Dollar edged slightly higher against the Euro ahead of important U.S. non-farm payroll data which will be released today. However, it fell slightly against the Japanese yen.

The U.S. Dollar rose against major currencies on Wednesday, following the release of a report which showed that July U.S. private sector job data was unexpectedly better than the previous month. This data consequently raised the possibility of seeing some improvement in the data expected from the non-farming sector payroll, which will be released on Friday.

On July 28, 2008 Merrill Lynch announced that it would write down approximately $5.7 billion for the 3rd quarter and also raise capital by selling shares equivalent to $8.5 billion. Consequently, Merrill Lynch’s losses and write downs in the past year is almost $20 billion and $40 billion, respectively. These hefty write downs and the need to raise additional capital was somewhat offset by worries over the impact of the U.S.-routed financial problems on the world economy, and as a result, the U.S. Dollar traded flat in early trading today.

The U.S. Dollar rose to 108.00 Yen today as a result of last week’s better than expected data from the United States regarding home sales and capital spending. This data lifted some of the concerns over the U.S. economy.