Forex Investment and Currency Trading

The statement accompanying the unanimous decision to cut interest rates clearly signaled greater concerns about growth with inflation much less of a concern and expected to moderate in coming quarters. While not expect further rate cuts the risks are skewed to further easing in the months to come; Fed Fund futures are now pricing in a nearly 100% probability of a further 25bp cut by year end. In terms of price action, US equities seesawed for most of the day on light volume as investors awaited the FOMC announcement, but sold off sharply into the close and ended the day - 1.1% lower. Crude oil rallied 7.6% to settle at $67.50/bbl on the back of the biggest one-day decline in the US dollar since 1998.

Policy is also being loosened elsewhere. China cut rates another 27bp yesterday, the third such move in the past two months. Market expects a further 100-150bp of rate cuts by end-2009. Taiwan’s central bank also announced an inter-meeting policy rate cut of 25 bp today. Asian stocks have posted strong gains overnight in the wake of this latest round of global rate cuts and the announcement from the Fed of extending FX swap lines to Korea (along with Brazil, Mexico and Singapore).