Dollar Index And Financial Sector

Daily Forex Fundamentals | Written by The LFB-Forex.com | Aug 05 08 21:25 GMT |
Dollar Index And Financial Sector

Dollar Index: The important thing to take from the FOMC statement is that policymakers continue to voice concerns regarding growth and inflation metrics, as Chairman Bernanke did during his recent congressional testimony. By noting that "the inflation outlook remains highly uncertain" Bernanke was apparently able to appease the inflation hawks, as Richard Fisher remained the lone dissenter. The bottom line is the economy is either in, or is very close to being in a recession and the chances of the Fed raising interest while the situation exists are probably very small. The statement and vote likely do not offer a sufficient vigilance on inflation in order to give true support the dollar, in that there is a lack of any signal regarding a rate increase. Look for the Fed to be on hold through the rest of 2008. On the day, the index rose to 73.921 after gaining 0.459 (0.62%).

The Financial Sector: The sector did very well as Citigroup and Bank of America led financial shares to their best gain in a week. Financial shares rallied 4.3% as traders increased bets that the central bank will hold borrowing costs at 2.0% through the rest of the year after the FOMC statement was released. AIG, the world's largest insurer, rallied 10% to $29.33 for the biggest gain in the Dow average. Citigroup gained 5.6% and Bank of America rose 3.6%. Of immediate concern to the sector as well as the overall market is the direction of oil prices. The market will be supported if oil falls to a level that will not ignite inflation, slow global growth further, or force central banks to raise interest rates. On the day, the XLF gained 1.09 (5.08%) to close on 22.54 good volume of 180,565,922 about 10.5 million above the daily average.
U.S. Session Wrap DOW gains an additional 110 points after the Fed's statement

It was a day of falling oil prices and rising equity markets, helped at the end when the Fed failed to signal that a rate increase was eminent. The question going forward is how much further oil prices can decline, because despite the fact that it has fallen nearly 18% since the July peak, it is still up nearly 30% on the year and therefore still has the potential to spur inflation and retard growth. There still are plenty of headwinds for the economy; The Institute for Supply Management said that its non-manufacturing index rose to 49.5 in July from June's reading of 48.2, but any number below 50 still indicates contraction is the sector, which declined for the second month in a row.

At the close of floor trading on the NYSE, the DOW was on 11615.77 after gaining 331.62 (2.95%). The DOW was 220 points ahead immediately prior to the FOMC decision. The S&P closed on 1284.88, up 35.87 (2.87%) while the NASDAQ finished trading on 2349.8 with a gain of 64.27 (2.81%). Goodyear (12.4%), Capital One (12.1%) were the two biggest percentage gainers, followed by Lehman (12.0%), AIG (11.7%) and Wachovia (11.2%). Treasuries were slightly lower. The two-year note yield gained 2.4 basis points to 2.548%. The benchmark 10-year note rose 5.6 basis points to yield 4.022%. The dollar had a big day against the euro (0.78%) and pound (0.35%) but gained only 0.01% on the yen despite the sharp rise in the equity markets.

Crude oil for September delivery fell $2.24 (1.8) to settle at $119.17 a barrel for the first time in three months, on the threat of slowdowns in the U.S. and European economies. Gasoline also fell to the lowest since May.

Gold futures for December delivery fell $21.80 (2.4%) to $886.10 an ounce falling below $900 an ounce for the first time since June as the dollar rebounded.

In other news Merrill Lynch slashed its third-quarter earnings estimates on Goldman Sachs to $2.80 from $4.28, citing negative trends, particularly in the strongest businesses of the investment bank. "We feel that GS's leverage to global equity markets and principal businesses will prove a fairly significant headwind," Merrill's Guy Moszkowski said in a note to clients. After the market closed, Cisco Systems reported earnings and sales that just edged analysts' estimates as companies upgraded networks to handle growing Internet traffic, despite concerns of a slower global economy.

The LFB-Forex.com