Reply #18: dollar watch

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 72.782 Change -0.178 (-0.24%)

What Bernanke Could be Hinting About Interest Rates

http://www.dailyfx.com/story/bio1/What_Bernanke_Could_be_Hinting_1215554046268.html

The sharp drop in oil prices has helped to strengthen the US dollar. Pending home sales dropped more than expected, but it has failed to put a dent in the greenback which continues to follow equities higher. The dollar is becoming a safe haven bet as the Federal Reserve reminds us that they will be the lender of last resort. With stocks falling close to a 2 year low on Monday, Fed President Ben Bernanke attempted to stabilize the stock market and the US dollar by saying that they are thinking about "extending the duration" of their emergency lending facilities to investment banks. Is Bernanke trying to tell us something about interest rates? Perhaps, because to extend the availability of emergency lending facilities means that there could still be liquidity problems in the financial markets. Keeping the lifeline open to banks and raising borrowing costs at the same time would actually be counterproductive, especially if they expect the banks to tap into the lifeline. Bernanke is hinting to us that raising interest rates this year, even by 25bp is not a done deal. Oil prices have fallen to $136 a barrel and if crude continues to drop, the Fed's decision about interest rates will be an easy one. Bernanke and his colleagues are becoming extremely sensitive to market prices which could be very dangerous but for the time being its working. Both the stock market and the US dollar have recovered. However oil prices are really dictating Fed policy at the moment. Hawkish comments from Fed President Lacker suggest that some Fed officials are still nervous about inflationary pressures and stand ready to act if necessary. Fed fund futures are currently pricing in a 45 percent chance that interest rates will be increased in September, down from a 65 percent chance a week ago. As for the October meeting, there is only a 53 percent chance that rates will be increased; the odds for December are about the same. If the duration of the emergency lending facility is actually increased, then a rate hike by the Federal Reserve in 2008 becomes highly unlikely. The G8 Summit comes to an end tomorrow, no comment about currencies are expected to be made.

...more...

Federal Reserve vs. European Central Bank: Who is the Least Hawkish?

http://www.dailyfx.com/story/topheadline/Federal_Reserve_vs__European_Central_1215535552806.html

Federal Reserve Chairman Ben Bernanke has the market guessing about whether interest rates will be increased this year. His comments this morning about increasing the duration of emergency lending to investment banks reduces the chance that borrowing costs will rise. Take a look at the recent comments from Fed and ECB officials:

US Fed: Down Playing an Interest Rate Hike?

Ben Bernanke, Federal Reserve Chairman (Voting Member) ``The Federal Reserve is strongly committed'' to financial stability and is ``considering several options, including extending the duration of our facilities for primary dealers beyond year-end,''

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said. – July 8, 2008

Janet Yellen, San Francisco Fed President (Non-Voting Member)

"Things could get worse before they get better," “The unemployment rate could increase”

"The risks to inflation are likely not symmetric and they have definitely increased. We cannot and will not allow a wage-price spiral to develop," – July 7, 2008

Henry Paulson, US Treasury Secretary

There is a strong possibility that we will be growing at the end of the year - that we will have stronger growth at the end of the year than we have now."

"Our biggest concern is the downturn.”

“There's no doubt that high headline inflation numbers are a real concern to Americans, but core inflation is relatively contained and my biggest focus today is on the downside risks, which are housing, oil prices, and what is going on in the capital markets." – July 3, 2008

Federic Mishkin, Fed Governor (Voting Member)

"Growth could continue to be quite weak, though I would hope it would pick up next year," - July 2, 2008

...more...