Fed's Bernanke Tips Hat To Rate Cut

Daily Forex Fundamentals | Written by MG Financial Group | Oct 08 08 02:32 GMT |

The global financial crisis continues to drive the volatile movements in the foreign exchange market, with the yen and dollar benefiting from safe haven flows amid heightened risk aversion. The US equity bourses extended its dive for another session with the Dow Jones losing 5.1% to 9,447.11, the Nasdaq plunged 5.8% to 1,754.88 and the S&P 500 shredding another 5.74% to break beneath the 1,000-level to 996.23. Amid growing speculation of coordinated intervention by global central banks, Fed Chairman Bernanke raised the prospects for a rate cut suggesting the FOMC would 'need to consider whether the current stance of policy remains appropriate' given the current 'extraordinary stress' on the financial system. It was also revealed earlier that the Fed would be purchasing commercial paper issues to facilitate the improved flow of credit with Bernanke saying they will continue to pursue tools at its disposal to improve market functioning and liquidity. Meanwhile, fears overseas have heavily weighed on the sterling and euro - amid burgeoning skepticism over the stability of European and British financial institutions. It was announced earlier today the UK would inject up to 50 billion pounds into several banks, with the government purchasing preferred shares of the banks - thus partially nationalizing the institutions. Governments across the globe have stepped up efforts to inject liquidity into cash-strapped financial institutions in order to stave off further tightening in the credit markets and stem the crisis. The minutes of the FOMC's September 16th meeting revealed deliberations for a rate cut, with Board members expressing greater pessimism over growth in the coming year. The minutes showed some members calling for a 'policy response' to the detrimental impact of the financial crisis on growth. With the next Fed policy meeting at the end of October, we look for a 50-basis point rate cut from the FOMC, lowering its benchmark lending rate to 1.50%. In the coming session, the economic reports slated for release include the ECB monthly report, Eurozone GDP and US pending home sales. MG Financial Group http://www.mgforex.com Legal disclaimer and risk disclosure MG Financial Group, or any of its related companies, will not be held responsible for the reliability or accuracy of the information available on this site. The content provided is put forward in good faith and believed to be accurate, however, there are no implicit guarantees of accuracy or timeliness.