Forex Daily

On Tuesday, the Federal Reserve made an unprecedented move and cut interest rates from 1% to between zero and 0.25% as it tries to fight the country’s recession. In a statement, the Federal Reserve said that “the outlook for economic activity has weakened further”. It also predicted that the rates would stay at low levels for the foreseeable future.

Most analysts are calling the new interest rate virtually zero, with the Bank of America’s European economist Holger Schmieding saying, “Whether it’s zero or 0.25% actually does not make a huge difference”.

The dollar fell to an 8-week low against the euro and numerous other currencies today, as investors stayed clear of the greenback because of uncertainly of the struggling US car manufacturers and its economic impact.

Late last week, the White House said it was considering a $700 billion bailout to prevent the collapse of the US car manufacturers; this was after the US Senate had rejected the plans on Thursday.

In the early session, the dollar was 0.7% down against the euro at $1.3470, as investors are wary that the collapse of any one of the US car manufacturers could drag other companies under with it.

The euro and pound were down against the US dollar and yen on Tuesday, as investors are still unsure of which way the markets are turning. Disappointing UK economic data put the pound under pressure in early trading, as analysts another Bank of England interest rate cut.

Risk demand was low as other economic figures showed the Japans economy shrank 0.5% in Q3 of 2008, far more than the anticipated 0.1% fall. Japanese entertainment firm Sony, also announced it would be cutting 5% of its jobs as part of their restructuring process.

The dollar was down against the euro yesterday, as the European Central bank made a bigger than expected interest rate cut. The ECB cut rates by 75 basis points to 2.5%, which was 25 basis points more than analysts were predicting, pushing the euro up and the dollar down.

The Bank of England also lowered its rate by 100 basis points, its lowest level since 1951 to 2% as it looks to prevent a long lasting recession.

Investors were reluctant to take on the dollar, as key US employment data is due later today, which is expected to show a loss of around 340,000 jobs in November.

The yen was boosted to a 5 week high against the dollar, as investors continued to be wary of the global economic slowdown. The news comes as the Reserve Bank of Australia unexpectedly cut its interest rates by 1% to 4.25%; meaning that a total of 3% has been cut in the last four months.

The dollar fell 0.4% in early trading against the yen, bringing a 5 week high of 92.64 yen. The euro also fell against the yen, ending at 117.25 yen. The euro didn’t fair too well against the dollar either, falling 0.4%, whilst sterling took a 0.6% hit against the greenback.