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Friday, October 19, 2007

Market Discounting for Further Rate Cuts

The market tells you everything you need to know about what the economy is doing, if you can only read the signs. Such is the case with the drop in the dollar.

Dollar stays near record euro low
The US dollar remained near record lows against the euro in early Friday trading, on growing expectation of a further American interest rate cut.

After disappointing US economic data overnight, one euro was worth $1.4280 by late morning in Europe, just short of Thursday's all-time $1.4311 low.

Analysts said the rise in US unemployment makes the Federal Reserve more likely to trim rates this month.

Since then, a raft of mostly disappointing economic news and soft inflation figures has prompted the anticipation of further rate cuts.
Bottom line is the Fed can either deal with inflation or can deal with recession at any given time.

Given that inflation is still relatively low right now even though energy costs are jumping, the Feds then can turn their attention to the possibility of a recession.

The market's dropping the value of the dollar is anticipating that the Fed will have no choice but to drop the discount rate another step or two in the coming months to grow the economy through the current slow down. I expect another 0.25% bump down in the rate shortly by the Fed.

That also means there are some tasty profits available for those investors who know how to position themselves accordingly.

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