Market News

On Monday, March 24, 2008 in Asia, the U.S. Dollar gained on the Euro after hitting record lows last week. Due to the Easter Holiday in the United States and Europe, trading activities was very light in Asia as most investors are waiting for the U.S. market to resume trading later today.

Since the beginning of the year, there has been speculation that foreign investors, especially those in Asia, have reduced their purchase of U.S. assets. Recent declines in the value of the U.S. Dollar and the interest rate cuts by the Federal Reserve have heightened this speculation.

As a result of the long Easter holiday, foreign exchanges in Europe and the U.S. were closed for Good Friday, and the U.S. Dollar did not fluctuate much against major currencies as Asian investors did not fully participate in the absence of major players from the U.S. and Europe.

Investors continue to be concerned about the extent of the liquidity crisis and whether more financial institutions will fall victim to the credit crunch. Consequently, investors are beginning to move into safe haven currencies such as the Yen and the Swiss Franc, resulting in the U.S. 3-Month Treasury rates falling to 55 basis points. On Friday, the U.S. 3-Month Treasury rate was as high as 1.20%, but the demise of Bear Stearns triggered the fall to its lowest level in more than 50 years.

Excessive volatility, uncertainty and turbulence in the global financial markets continue to negatively impact economic growth. According to some analysts, the U.S. economy is heading towards recession and the Federal Reserve Bank should continue to cut interest rates further to avoid full blown recession.

Excessive volatility, uncertainty and turbulence in the global financial markets continue to negatively impact economic growth. According to some analysts, the U.S. economy is heading towards recession and the Federal Reserve Bank should continue to cut interest rates further to avoid full blown recession.

On Tuesday, March 18 2008, the U.S. Dollar strengthened against major currencies after the new of better than expected quality results from two large U.S. investment banking firms, Goldman Sachs and Lehman Brothers and the 75 basis points Federal Fund interest rate cut, from 3.00 to 2.25, by the Federal Reserve Bank. These results helped to ease investors’ concerns about the liquidity crisis, as investors had speculated that Lehman Brothers is a potential victim of the liquidity crunch.

Global investors are anxiously waiting for today’s (March 18, 2008 close) results of the quarterly results of U.S. Investment Banks such as Goldman Sachs, Lehman Brothers and Morgan Stanley in order to gauge the extent of the liquidity crisis in the financial markets and also identify which other financial institutions have succumbed to the crisis...

The U.S. Dollar drops to lowest level against the Euro and the Yen as investors believe that more financial institutions will fall victim to the liquidity crisis which led to the acquisition of Bear Stearns by J.P. Morgan.

Leaders of the European Union, meeting in Brussels said on Friday, March 14, 2008 that the volatility and erratic swings in the foreign exchange rates will negatively impact economic growth. In a written communiqué, they said, “in the present circumstance, we are concerned about the excessive exchange rate moves.” According to Jean-Claude Juncker, Prime Minister of Luxemburg, this is the first time that the leaders of the European Union have issued such a communiqué on foreign exchange fluctuations. French President, Nicholas Sarkozy and British Prime Minister, Gordon Brown, also expressed their concerns about the volatility in the exchange rates.

As predicted, it was only a matter of time before the U.S. Dollar fell below the psychologically important 100 yen mark. On Monday, March 14, 2008, the U.S. Dollar dipped below 99 yen, and fell to a record low against the Euro, following the announcement that Bear Stearns is seeking an emergency cash injection from the Federal Reserve and JP Morgan Chase. This news confirmed investors’ fears that the U.S. economy is, indeed, in a recession and it is likely that more big financial firms, such as Bear Stearns, are in a similar liquidity crisis.

On March 14, 2008 the Euro surged again to a record high against the U.S. Dollar as the liquidity crisis in the financial market continues and the U.S. economy falters. During the meeting of the leaders of the European Union on March 14, 2008, much of the discussion centered on how to stabilize the foreign exchange markets. According to Romano Prodi, Italy’s Prime Minister, urgent actions are needed now because high oil prices combined with the level of the Euro, will affect economic growth in the Euro Zone.

On Thursday, March 13 2008 at 00:52 (GMT) on the Tokyo Forex market, the Euro traded at 1.5527 dollars, an all time high against the dollar. Earlier that day the U.S. dollar traded at 101.36, the lowest against the Yen in 12 years.

Late Tuesday, March 11, 2008, the U.S. Dollar surged against major currencies after news of a joint effort by central banks around the globe to inject $200 billion into the troubled financial market. The U.S. Federal Reserve Bank, together with the European Central Bank, Bank of Canada and Swiss National Bank, have pledged to provide loans to financial institutions in exchange for debt, including those backed by mortgage securities.

Comments made by Jean-Claude Trichet, the European Central Bank president, at the G10 meeting held on March 10, 2008 in Basel, Switzerland, caused a dip in the value of the Euro and other major currencies against the U.S. Dollar. According to Trichet, “excessive volatility and disorderly movements in the exchange rates are undesirable for economic growth.” While his remarks were similar to those he made last Thursday after the European Central Bank made the decision not to cut interest rates, this time, his commentary was considered stronger.