Is Fed cutting interest rate by 50 or 75 basis point cut on 29th-30th Jan? Or will the cut be now?

Posted on January 17, 2008
Filed Under Forex News |

For Forex traders trading on Fundamental Analysis and News, being updated and knowing what is happening may be vital for one’s trading success.

Currently in the US, Dow Jones is down around 6% since the beginning of the year and the Nasdaq has shed almost 10%. Banks keep making public announce about their big write-off from the sub-prime woes and big looses. Federal Reserve’s Beige Book survey said that US economic momentum had moderated during the end of 2007. This moderation is partly due to the contracted retail sales and producer prices. Bloomberg News said that this is the worst year for US retailers since 2002.

Economists are now raising the odds for a recession. Some even argue that the US economy is already in a recession. Based on textbook theory, a recession is defined as two consecutive quarters of negative GDP growth. Technically, US economy is still not in recession, even though the last quarter of 2007 may contracted. Only if this quarter is in negative growth that you declare the US economy is in a recession.

No one really knows for sure how weak the economy will get. How many additional write-off banks will report? Bigger shocks and more scary stuff may yet to come as banks call for big adjustments in their account book. As one government has said, it is better to eat your bitter medicine now to cure your illness at one go rather than to wait for it to develop into a tumor. How high oil prices will soar? Soaring oil prices will have damaging effect on the US economy as a whole, as US is the world’s largest oil consumer. How bad the US economy will be performing this quarter is anyone guesses?

We all know by now that US central bank, Federal Reserve, is one of the chief movers to most of your investment results. The Fed can be your friend or fore depending whether they increase or decrease the value of your investment portfolio. I said that because Fed has the power not just in anticipating market trends, but they actually cause them, by shifting the playing field when they raises or lower interest rates.

Now, the Fed has the power to determine whether the US economy falls into a recession. In the Forex futures arena, the market has already factor in a 50 basis point cut during their 29th-30th Jan meeting. If they cut interest rate by a mere 50 basis point at the end of the month, good chances that the US dollar may regain some composure as the market has already anticipated it. How far the US dollar will strength will also depends on what is the market sentiment towards other currency. As for the stock market, it will likely rally for a day or two and continue its downward momentum.

What if Fed cut interest rate by 75 basis point end of the month? Is this possible? Yes, as there is already speculation that the Federal Reserve could cut US interest rates by as much as 75 basis point. Some even mentioned that an interest rate cut now may be possible ahead of its scheduled end of month meeting. The latter step if taken is to send a message that the Fed is not playing around and will do everything in their power to prevent a recession from happening. Such announcement may be good for the stock market but not so good for the US dollar. How well or bad the US dollar will perform till the end of this month will greatly hinge on the decision of the Feb.

In Forex Trading, knowing the news and trading on the news are two different games.

Cheers, Kampai, Proscht^^!!

Comments

5 Responses to “Is Fed cutting interest rate by 50 or 75 basis point cut on 29th-30th Jan? Or will the cut be now?”

Gin2507 on January 17th, 2008 7:06 am

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Gen on January 17th, 2008 7:07 am

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himalman on January 17th, 2008 9:00 am

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aussiecynic on January 17th, 2008 1:27 pm

Very cool site… and is added to my favs..
May views on the US Economy are basically recession before the end the year… the REserve has been propping up the Stock Market for to long and somethings got to give…
perhaps cutting the base points will delay but I do think a slow and study drop is going to happen.. it will have to bring the economy back to a balance and level field… it will depend on how other countries react that will decide how hard the world economies slip during the next 6-12 months.. and I hope I am wrong…
Love the site … great info…
WEll done
Liudmila on January 17th, 2008 2:26 pm

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