Dollar Hits Another Record Low, Does The Fed’s Liquidity Injection Replace A 75bp Cut?
The dollar has just hit a record low against the euro and equities have extended Tuesday’s record breaking rally. And, like the broader financial markets, activity in the credit and money markets have seen a sharp spike in volatility recently stoked by inflammatory economic data and exogenous event risk that was both threatening and promising. By the end of last week, credit conditions were taking a severe turn for the worse. Lending activity was already being constricted owing to the tighter borrowing requirements following record losses reported by Freddie Mac and Fannie Mae. This was only exacerbated after indicators reported the service sector was contracting and employment fell for the second consecutive month. With dual concerns of an impending recession and deepening credit crunch, the outlook was bleak. However, when conditions seemed to be at their worst, the Fed once again stepped in with an expanded effort to revive liquidity.
Written by John Kicklighter, Currency Analyst for FXCM
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