The dollar posted a strong really against most of the majors as global economic conditions deteriorate. The EurUsd fell 240 pips to the low range of 1.27, while the UsdJpy fell slightly lower by 20 pips to the high range of 97. The GbpUsd collapsed 280 pips to the low 1.56 price area following the recent action by the BoE. Equity markets suffered substantial losses with the Dow down 4.85% or 443pts, and the S&P 500 off 5.00% to 904. European stock indexes also declined with the CAC 40 and DAX weaker by more than 6%. Bond yields shrunk with the 2yr below 1.3% which is symbolic of the extreme risk aversion and heightened volatility in the marketplace. Commodities dropped across the board with oil down 6.5% to $60bbl and mostly flat only off 0.80% to $734oz.

The ECB lowered rates 50bps to 3.25%, which was in line with expectations, the euro sunk as the trading day progressed. Trichet noted that further rate cuts are not out of the question, and the focus has shifted mostly to downside risk in growth. We are likely to see further weakness in the Euro throughout mid 2009, which will largely contingent upon an improvement in credit conditions. The BoE took a surprisingly aggressive stance against the financial crisis cutting rates 150bps to 3%. The sterling sunk following the monetary policy action, in addition the central bank stated “Since mid‐September, the global banking system has experienced its most serious disruption in almost a century.” Clearly both policymakers and market participants are looking for a prolonged downturn, and currency prices have reflected this point of view. The dollar should remain a safe haven currency in the near‐term, and the possibility of zero interest rate environment is becoming a reality.

ACM Forex
Advanced Currency Markets