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Thread: Markets Prepare for Biggest Fed Cut in 2 Decades

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    Default Markets Prepare for Biggest Fed Cut in 2 Decades

    Markets are relatively steady as traders prepare for today's FOMC rate decision. Markets were debating whether Fed will cut by 50bps or 75bps last week, interest rate futures are now pricing a 100bps cut after Fed's emergency move over the weekend. Whether Fed will cut by 75bps, 100bps or more, that will be the biggest reduction since Volcker lowered the federal funds rates from 11.75% to 10.00% in Oct 84. And real interest rates in the US will turn negative for the first time since 2003. Also, no matter how much Fed cuts and how dovish the statement is, it's hard to predict the immediate move of the oversold greenback with the possibility of profit taking recovery taken into account. Nevertheless, judging from interest rate futures and more importantly the decisive break of 100 in USD/JPY, markets are still expecting more policy easing from Fed after this meeting that could eventually bring the federal fund rates closer to BoJ's level than another other central banks'. So any recovery in near term is just..... recovery in the larger down trend.

    From US, other economic data include PPI which is expected to slow from 7.4% yoy to 6.8% yoy in Feb, with core PPI slowing from 2.3% to 2.1%. Housing stats is expected to drop further from 1012k to 995k annualized rate. Building permits is expected to drop from 1061k to 1020k.

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    Default Bear Stern sees markets suffer

    Sterling was unable to gains any significant traction against the Euro during Friday and weakened to new record lows around 0.7725 in New York.

    Trading was very choppy against the dollar with a broad 2.0170 - 2.0395 range as fear increased. There was a further increase in Sterling inter-bank rates during Friday with 3-month Libor increasing to 5.93% from 5.84% the previous day and compared with the 5.25% official Bank of England base rate.

    The renewed increase in market rates will create additional pressure for the Bank of England to cut interest rates to help alleviate the pressure. There will be further near-term fears over the financial sector which will also tend to undermine confidence in the UK economy and currency, at least in the short term.

    The intensification of risk aversion pushed Sterling weaker in Asian trading on Monday with the UK currency weaker than 0.78 against the Euro on a liquidation of carry trades.

    Volatility spiked higher on Friday with new record dollar lows around 1.5685 after the Bear Sterns news before a recovery to 1.5610 in very choppy trading.

    The dollar was supported by some rumours that the central banks had been checking prices. US consumer prices were unchanged in February while core prices were also static with an annual 2.3% increase. The moderate data will increase speculation that the Federal Reserve will find it easier to justify a large interest rate cut.

    The Fed will, however, be concentrating on the economy and very serious financial sector stresses in the short term. Bear Sterns announced that it had secured emergency liquidity through the Feds discount window via JP Morgan.

    Rumours surrounding the health of the bank has been building for days and this undermined the liquidity position as credit lines were cut. Following the news, there was some speculation that the Fed would cut interest rates by 1.0% this week to 2.0%.

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    The Bear Stern difficulties will reinforce market concerns over the financial sector and undermine dollar sentiment, although it will also maintain expectations that the healthy banks and Fed are taking steps to manage the situation.

    Euro-zone inflation increased to an annual rate of 3.3% in February from 3.2% which will maintain ECB concerns over inflation. The bank will also be concerned over rapid Euro gains and Liebscher, for example, stated that he was very concerned over excessive volatility.

    The markets were close to panic conditions on Monday as financial risk intensified. The sale of Bear Stearns to JP Morgan for US$250mn intensified fears over the scale of bad debts and there were further rumours of another round of write-downs.

    The dollar weakened sharply to near 1.59 against the Euro before finding some support from additional Fed measures. The Fed cut the discount rate to 3.25% and also announced further measures to boost liquidity by increasing lending on its own balance sheet. Markets will also remain on high alert over intervention in the short term.

    Heightened risk aversion and more declines in global equity bourses propelled the yen to its highest level versus the dollar since 2000 at 101.38. We expect the yen to continue edging higher with a near-term target of 100.

    Economic data from Japan this week will see the minutes from the BoJ monetary policy meeting, Q4 GDP, and January industrial production. The Bank of Japan is largely expected to remain on hold this year with slight risk that the BoJ could possibly ease rates.

    Nonetheless, we favour the yen to continue to benefit from increased risk aversion and see the currency breaking through the 100-level over the coming months..

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    Default Cutting foreign currency exchange risk

    IF you have found your ideal property in a country overseas and have agreed a price then you are susceptible to currency exchange rate fluctuations.

    Movements in the foreign exchange market can have a real impact, for example the range in 2003 for Sterling against the Euro was 1.58 to 1.37, or 13.3 per cent.

    This means that a property costing 158,000 might have cost anything between 100,000 and 115,328 - a marked difference.

    But there are steps you can take to control the risks involved.

    There are many financial organizations that can convert your sterling into local currency, but your bank is unlikely to give you the best rate.

    Specialist currency dealers will often significantly better your bank's rate ensuring you receive the commercial rate as opposed to the tourist rate.

    Luke Percy is an account manager at SGM-Foreign Exchange, a London based currency dealer.

    He said: "As soon as you have made the decision to buy in a different currency you will have an exposure to the currency markets that constantly fluctuate.

    "What is important is that this issue is addressed as early as possible to ensure that any extra cost is not needlessly incurred.

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    Default

    Contd....
    "I'll use an example to illustrate the point"

    Case Study: Mr and Mrs Featherstone had been considering moving to France for some time so when a job opportunity came up, they took the plunge and decided to move with their two children.

    In January 2003, they placed their house in London on the market and calculated that they would have around 250,000 available to purchase a new home in France.

    The Featherstone's soon had their house in the UK under offer, and having seen the details of a number of potentially suitable properties in the Dordogne, the Featherstone's travelled to France to view them.

    Having looked at the exchange rate before leaving home, they used (a then) conservative rate of 1.45 (against a market rate around 1.48, or the estate agent's suggestion of 1.50) and established that they could spend around 365,000.

    In March they found a suitable house, and signed a contract to secure it. Shortly after their return to England, Mrs Featherstone contacted SGM-FX to find out more about arranging the foreign exchange aspect of their purchase.

    The main concern for the Featherstone's was to avoid the risk that the exchange rate would move adversely, before they had completed on the French property. This would at best cost them money or at worst cause them to lose their property.

    The Featherstone's did not delay and first of all booked the deposit of 36,250 with SGM-FX which was booked at a rate of 1.4610 (compared to their bank's rate of 1.4435).

    At the same time they also bought 'forward' the balance of 326,250 to coincide with their completion date at the end of June.

    The Featherstone's motivation was to avoid risk, and their decision meant that they were not exposed to the subsequent drop in the exchange rate from March to June, from around 1.48 to 1.38.

    In real terms the total saving was 12,640 or around 5% of the property's value.

    Luke explained: "It is worth remembering that the market could have moved the other way, but the most important thing is to eliminate risk and to know exactly how much your overseas property will cost.

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    Concluding part:
    "The last thing that Mr and Mrs Featherstone wanted was the risk of a currency movement on 250,000 in the foreign exchange market with no ability to influence the outcome."

    By 'forward buying' your currency you are agreeing with the dealer a price that is essentially today's price, but that will allow you to use your money at a future date.

    The main attraction of forward buying is not the possible gain you might enjoy, but the certainty you have.

    You will know the exact costs involved and therefore will not be constantly checking currency values, which is a 24-hour business.

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    Default

    yeah ,i made 200pips on gj and 60 pips uj.thats coollllllllllll

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    today seems to be the next waves forming before the next leg down

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    Default Dlr falls as banking worries overshadow Fed cut

    The dollar weakened broadly on Wednesday and the yen rallied as worries about the global financial sector snuffed out a brief boost to risk appetite inspired by the Federal Reserve's 75 basis point rate cut.

    The Fed lowered its federal funds target rate on Tuesday by 75 basis points to 2.25 percent which fuelled a relief rally in equities, a tightening in a broad range of spreads and a rebound in the dollar.

    But the rise in risk appetite proved short-lived, with equities firmly moving back into the red on Wednesday, while among currencies the low-yielding yen and safe-haven Swiss franc resumed their rallies.

    Investors remained concerned about the health of the banking sector despite taking some brief comfort from stronger than expected earnings reported by Lehman Brothers (LEH.N: Quote, Profile, Research) and Goldman Sachs (GS.N: Quote, Profile, Research) on Tuesday and Morgan Stanley (MS.N: Quote, Profile, Research) on Wednesday.

    "It's swinging one way and then the other," said Daragh Maher, senior currency strategist at Calyon.

    "The market mood is locked into (the banking worries) and there are amplified moves as things are so opaque."

    By 1154 GMT the euro was up 0.5 percent at $1.5699, still two cents below Monday's record peak of $1.5904

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    Default Dollar up in commodity unwind, pre-Easter adjustment

    The dollar rallied on Thursday as investors took profits from oil, gold and other commodities, repatriating their cash back into the beleaguered U.S. currency ahead of the Easter break.

    Oil was down almost 4 percent CLc1, dipping below $100 a barrel, gold flirted with its biggest weekly loss in a quarter of a century XAU and platinum was well on track for its steepest weekly decline in over 20 years.

    As investors slashed their "long" exposure to these assets, they covered "short" positions in the dollar, lifting the currency up from historic lows charted earlier this week.

    "The dollar is holding up remarkably well ... and I am wondering if the steep fall in commodity prices is causing stress among leveraged names and creating a short-term demand for dollars," said Neal Kimberley, head of FX sales at BTM-UFJ in London.

    "Another scenario is that we are merely seeing Europe reducing dollar shorts ahead of the Easter break. This is also highly plausible and possibly short-lived," he said, adding that longer-term investors might be tempted to use the dollar's rebound to sell into again.

    At 1135 GMT, the euro was down 1.2 percent at $1.5450, well off Monday's record high of $1.5904 and chalking up its steepest one-day fall since early February. Still, the euro is up nearly 6 percent on the year.
    What is your opinion about this?
    The dollar also gained 1 percent against the yen to 99.70 yen JPY and bounced a healthy 1.6 percent versus the Swiss franc to 1.0125 francs CHF

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    Default Market Update

    The final London Session of a very busy week (Easter) has brought a substantial decrease in trading activity. Market conditions are inferior to the backdrop to which we recently have become accustomed over the past two weeks. Both volume and volatility came sporadically, if at all, leaving market players with range bound, illiquid price movement. The only trading we heard of was the closing of positions heading into the holiday weekend.

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    now would be the very interting week the coming would be
    as there would be lot of decisive moves this week

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    Default London Gold Market Update

    Gold Ends Easter Week 8% Down as Silver Loses 17%, Mining Stocks Drop 15% on US Dollar Bounce From Chris Mullen at GoldSeek.com and Adrian Ash at BullionVault ... Gold Prices plunged all the way to $904.45 by early trade in London on Thursday, but rallied for most of the rest of the session to ended almost $15 off the low with a loss of 2.76% for the day. All major European and US markets then closed for the Good Friday holiday, and London's bullion market won't re-open until Tuesday Ending

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    congrates dude
    good to see that u have made 200pipes gj & 60 pipes on uj
    keep going nicely

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    The dollar weakened broadly on Wednesday and the yen rallied as worries about the global financial sector snuffed out a brief boost to risk appetite inspired by the Federal Reserve's 75 basis point rate cut.

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