The US dollar found itself in troubled waters as Fed Chairman Bernanke told the Senate Committee that the FOMC will continue to target the economic slowdown in the US, and stated that they are ready and willing to make more aggressive rate cuts if more signs of weakness emerge for the economy. Bernanke told the committee that the FOMC has changed course as they pushed inflation targeting policies aside, and "will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks." After the statement, the US dollar choked under pressure and dropped significantly against all of the major currencies with exception of the Canadian dollar.
The securities market also took a hit as advances were cut short resulting from the change in policy by the FOMC, and caused the market to retrace most of the week’s gains. The DJIA plunged 175.26 points today to stand at 12,376.98 points as technology giant Intel topped the losers with financial titans Citigroup and JP Morgan Chase following, while Exxon Mobile and AIG came out as the sole winners of the big 30. The broader S&P500 also posted an 18.35 point decline as it fell 1,348.86, while financial insurance firms were mixed as Ambac Financial, MBIA, and PMI group shares advanced.
US Treasury prices rose today as Bernanke lowered growth prospects for the US, rallying risk adverse investors into the safe haven of risk free bonds. Bonds advanced as the 10-Year yield fell to 3.80 percent, while the 2-Year yield dropped to 1.88 percent. For tomorrow, we expect the US dollar to continue to lose ground as the U. of Michigan Confidence index and the Empire Manufacturing data are expected to show further deterioration of consumer sentiment as well as a fall in manufacturing output.
