Markets Steady Ahead Of the FOMC Decision
Markets Steady Ahead Of the FOMC Decision
Stocks were virtually unchanged leading up to the Fed’s 14:15 EDT decision as debate over whether another rate cut would support equities made the rounds.
“Stock markets received an immediate boost in the past when they got what they were looking for,” said Matthew Carniol, chief currency strategist at TheLFB-forex.com. “As we have seen, nothing was able to be sustained so you have to question why another reduction in rates would make a difference now. A 50 basis point cut is probably their best option at this point, given the market’s expectations. Another important factor will be to see if the Fed moves to a ‘conditional monetary policy’ in their statement, which means the Fed will say they intend to keep rates low until conditions improve. That would be something different and it could be beneficial.”
The dollar was weaker against most of its trading partners, falling 1.42% against the euro, 0.46% against the yen, 2.83% to the pound and 3.96% on Australia’s dollar. There was some good news regarding interbank lending; overnight Libor fell 9.2 basis points to 1.14% and 3-month rates fell 4.5 basis points to 3.42%. Three month rates averaged about 15 basis points above where bankers viewed the Fed’s overnight rate would be during the term in the year leading up to the start of the credit crisis in July 2007.
The Fed’s effective funds rate has averaged well below 1.00% over the past several weeks due to the expansion of its balance sheet. It averaged about 0.77% last week and was 0.97% on Monday. If the Fed continues to quantitatively ease, as expected, the effective rate could be around 50 basis points by Friday.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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