Monday March 17, 2008 - 20:36:54 GMT
Share This Story
Reuters - www.reuters.com
FOREX NEWS-US dollar slumps in wake of Fed's emergency measures
(Updates prices, adds comment)
NEW YORK, March 17 (Reuters) - The U.S. dollar tumbled to a
12-1/2 year low against the Japanese yen on Monday, and also
saw record lows against the euro and the Swiss franc, as
emergency liquidity-boosting measures by the Federal Reserve
over the weekend failed to ease worries about the U.S.
The greenback sold off in reaction to the Fed cutting its
discount rate by 25 basis points to 3.25 percent on Sunday and
after the opening up of the Fed's discount window lending to
major investment banks, a tool not used since the Great
The Fed's move accompanied the purchase of Bear Stearns
(BSC.N: Quote, Profile, Research) by JPMorgan Chase (JPM.N: Quote, Profile, Research) for just $2 a share, less
than one-tenth of the bank's share price on Friday.
The U.S. dollar slid as much as 3.0 percent to below 96.00
yen, its lowest since 1995, bringing year-to-date losses to
more than 13 percent.
"The Fed's announcement to triple the maximum maturity of
discount window loans to 90 days and its $30 billion in funding
of Bear Stearns less liquid assets not only indicated the grave
situation posed to the counter party risk involved, but also
highlights the increased ineffectiveness of the Fed's historic
liquidity injections yet to date," said Ashraf Laidi, chief FX
strategist, CMC Markets U.S. in a research note to clients.
The dollar fell as low as 95.77 yen according to Reuters
data <JPY=>, and saw historic lows 0.9637 Swiss francs <CHF=>
after breaking below parity last week.
The euro rose as high as $1.5904, having already added
around 4.0 percent in the first two weeks of March, roughly
doubling its year-to-date gains <EUR=>. It last traded at
Matthew Strauss, a currency strategist at RBC Capital in
Toronto, said that despite the high levels in dollar-yen and
rumors of possible intervention by the Bank of Japan, there
were no clear indications the Japanese government is ready to
take action to prevent the currency from appreciating further.
Implied volatility, a key component of option pricing, in
dollar/yen surged to its highest levels in around a decade both
on the one-week <JPYSWO=> and one-month <JPY1MO=> horizon.
In another report on Monday, the U.S. Treasury Department
said net overall capital flows in the country fell to its
lowest level in four months in January. The inflows were not
sufficient to cover the month's U.S. trade deficit. For
details, see [ID:nN17556519].
"Today's TICs report takes a back seat to tomorrow's FOMC's
decision, with market expectations regarding the size of the
anticipated cut all over the map," Michael Woolfolk, a senior
currency strategist at The Bank of New York Mellon, said in a
Short-term U.S. Treasury yields fell to five-year lows as
investors expect the Fed could cut overnight rates by up to a
full percentage point at its policy meeting on Tuesday.
The rapid U.S. dollar fall fanned talk of possible
coordinated dollar-buying intervention from major central banks
other than the Bank of Japan.
"From the ECB point of view, these are moves which are not
easy to ignore," Dresdner Kleinwort currency strategist Michael
Klawitter said in Frankfurt.
The euro saw some volatility when Market News
International, citing a source, said the European Central
Bank's Governing Council will likely express concern about the
euro's rapid surge against the dollar in a coordinated "verbal
intervention" over the next several days and weeks.
But the sources noted that "verbal intervention" doesn't
mean actual central bank intervention in foreign exchange to
stem the euro's rise against a weak dollar and the euro's moves
Central banks in Europe, Japan and the U.S. last jointly
intervened in September 2000, propping up the euro after the
currency hit an all-time low below $0.85, a loss of nearly 30
percent of its value from its January 1999 launch.
(Reporting by Nick Olivari and Vivianne Rodrigues)
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."