US Dollar Slump Continues in the Aftermath of Tuesday's Aggressive Fed Rate Cut - More Losses to Come?

Wed, 17 Dec 2008 16:54:01 -0500
By Terri Belkas, Currency Strategist strategist@dailyfx.com

The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets.

Euro, Swiss Franc Surge to Record Highs Against British Pound British Pound the Only Major Currency Weaker Than the Dollar as BOE Minutes Signals More Rate Cuts Japanese Yen Intervention Risks Rise as Rally Accelerates, Commodities Brush Off OPEC Output Cut US Dollar Slump Continues in the Aftermath of Tuesday’s Aggressive Fed Rate Cut - More Losses to Come?The US dollar index broke straight through the support we noted yesterday at the 50 percent retracement level of 71.31 - 88.40 at 79.85, and extended its losses for the sixth day in a row. The Federal Reserve’s aggressive reduction in the fed funds rate to a record low range of 0.0 percent - 0.25 percent has had a major impact on the greenback, especially as the central bank has essentially indicated that they are shifting their focus away from the economy and on to the financial markets. Indeed, from a monetary policy perspective, there isn’t much more that the Fed can do for growth so they may as well direct their efforts toward providing liquidity. The Fed has already announced plans to buy “large quantities of agency debt and mortgage-backed securities” and “stands ready to expand its purchases…as conditions warrant.” The new twist though, is that the Fed is ready to evaluate the possible benefits of purchasing longer-term Treasuries, aka pursue quantitative easing. Simply put, this is a different method by which to bring down interest rates, and it is the potential of such a result that is helping to drive the greenback lower. There won’t be much in the way of key US economic data through the end of the week, and for that matter, through the next two weeks. Given the lower volumes typical of this time of year, it seems like the countdown to 2009 could be quite volatile and punctuated by extensive declines in the US dollar.