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09/16/2007 - Fed set to cut rates only 25 bps; issue relatively stern statement

Posted by FOREX.com's Weekly Strategy in September 14th 2007  
* Fed set to cut rates only 25 bps; issue relatively stern statement
* Fallout is likely equity and risky trade negative
* GBP under pressure from Northern Rock, overextended housing market
* Eurozone sentiment set to take a hit with lower ZEW

The US dollar finished last week modestly lower on the close, but up from its intra-week low at 79.30 in the USD index. The market remains heavily focused on USD bearish themes, but I think the real story remains the ongoing credit crunch and the uncertainty it poses for financial markets. Late last week we got another dose of bad news in the form of Northern Rock, the fourth largest UK mortgage lender, seeking emergency funding from the Bank of England (BOE). Northern Rock may be the tip of the iceberg in the UK, with home price indexes starting to show declines for the first time since 2001. In past weeks I have repeatedly cautioned about the risk of negative news surprises in general and on the risk facing the UK housing market in particular. These events appear to be in play at the moment and are very likely to keep the GBP under pressure, both against the EUR and the USD.  Full text »

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Filed under: Weekly Strategy