Wednesday, February 27, 2008

Dollar hits new low as Fed signals rate cut

Watch For More Rate Cuts next month!!!

The dollar fell to a fresh record low against the euro on Wednesday as Ben Bernanke signalled that the Federal Reserve is likely to cut interest rates again next month.

Consumer spending “appears to have slowed significantly” while “the business sector has also displayed signs of being affected by the difficulties in the housing and credit markets”. Moreover, “nonresidential construction is likely to decelerate sharply in coming quarters”, he said.
Warning that “the risks to this outlook remain to the downside”, the Fed chairman highlighted a number of threats to growth. The housing market or labour market “may deteriorate more than is currently anticipated” and “credit conditions may tighten substantially further”.
In contrast, there were risks in both directions to inflation, although recent increases in commodity prices and the bad inflation numbers “suggest slightly greater upside risks” to prices than the Fed perceived last month.
While the prospect of more rate cuts put pressure on the dollar, gold and oil set new highs and stocks and Treasury bonds traded in a volatile manner.
Mr Bernanke’s appearance on Capitol Hill came as Sir John Gieve, deputy governor of the Bank of England, called on international regulators to consider new rules that would require banks to hold more capital in the boom years of a credit cycle but allow that to drop as the cycle turned down.
The Commerce Department, meanwhile, reported that sales of new homes fell to the slowest pace in nearly 13 years.

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