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Surprise Fed rate cut sparks dollar sell-off

lil dickie said: "Well you could almost predict this. Rate cuts are almost always bad for the dollar it seems. Todays surprisingly large cut [url=http://www.reuters.com/article/usDollarRpt/idUSN2254001820080122]made people feel gloomy[/url] about the future of the dollar and the US economy. [quote] The Fed's emergency move to cut rates by three quarters of a percentage point was precipitated by a global equities rout. The U.S. central bank's move wiped out the dollar's yield advantage over the euro, with the federal funds rate target now at 3.5 percent and official euro zone interest rates at 4 percent. This put the European currency on track to post its biggest one-day gain against the dollar in two years.[/quote] It doesnt seem like ANYONE likes this rate cut."

newinvestor123 said: "[QUOTE=lil dickie;61712]It doesnt seem like ANYONE likes this rate cut.[/QUOTE] Seems like EVERYONE likes it to me, which is part of the problem..."

Airelon said: "I'm wondering if there isn't a bit of sly reporting going on there. Pulling up a DX chart? The dollar is still holding steady on it's bottom, and has not slipped lower . . ."

ratAphooey said: "I actually read that investors were pricing in yet another rate cut already! With the rate at 3.25% how much lower is anyone expecting it to go?"

Heather said: "I wonder if most consumers will benefit from this? Credit card rates sure aren't falling in line with these interest cuts.."

maxorelaxo said: "Anyone feeling this rate cut is a bit strange? To me, if you put the pieces together (timing, news, practicalities) it seems like what happened is SocGen disbanded their rogue trader and then had to enter the markets immediately unwinding his $7+ BILLION in positions. Hmm, could that unexpected anomaly in trading lead to a global sell off? I don't know, looks like someone hit the panic button to me. to think that a rogue trader could spark a 75 bp rate cut seems to call into question the integrity and efficacy of the Federal Reserve system. So it goes.. and I may be wrong"

lil dickie said: "You could be right Max I dont like this rate cut at all. I think they are now going to the well too often."

EOD Traders said: "Its interesting to see public behavior to interest rate cuts. Contrary to popular myth, the Fed (more properly, the Federal Reserve) doesn't control mortgage rates. In fact, their most well-known policy tool -- the Federal Funds rate -- is the overnight interest rate which banks charge each other when a bank needs to borrow money to meet end- of-day reserve requirements. Simply, those rules say that a bank must have so much cash on hand when the books close at the end of the day, and those funds can be borrowed from another bank at this interest rate. You should know that the Fed merely "suggests" what that rate should be, which is why it's called a "target" rate; the actual rate is negotiated between the borrower bank and the lender bank. A good way to keep a handle on the Fed is to remember that the Fed Funds rate is the shortest of short-term rates -- literally, an overnight loan -- and a fixed-rate mortgage is all the way at the other end of the scale, a loan that lasts as long as 30 years. From Fed Funds moves, there's a complicated discussion of monetary policy about how Fed moves affect certain deposit and loan markets and inflationary expectations. We'll leave that for another article. The end result is that the Fed raises or lowers interest rates to help address increases or decreases in economic activity. Lower rates can help banks to make certain kinds of loans more cheaply, especially for business and certain kinds of consumer lending, and that can help to generate greater economic growth. Higher rates can cool demand, helping to keep inflationary pressures from forming. In some ways, expectations of what the Fed might do can be more important than what the Fed actually does, as their actions or inactions can help to confirm or deny what investors believe. You may also have noticed that sometimes the Fed cuts interest rates -- and fixed mortgage rates actually rise as a result. Why? If the Fed is taking steps to address economic weakness by lowering rates, that likely means that a return to faster growth -- and possible higher inflation, as well -- is coming sooner, rather than later. So what moves mortgage rates? Supply. Demand. Competition for money. Inflation. The Economy. Expectations. And us, of course. Jeff @ EOD Traders.com"

LongArm said: "[QUOTE=EOD Traders;62956] Contrary to popular myth, the Fed (more properly, the Federal Reserve) doesn't control mortgage rates...[/QUOTE] Nice copy/paste from the HSH website, Jeff. I wonder what they'd think of you taking their copyrighted material and passing it off as your own. [url]http://library.hsh.com/read_article-hsh.asp?row_id=85[/url]"

EOD Traders said: "Sorry no deceit intended. Just thought it was a very interesting piece of several long E-mail conversations I had yesterday with several large Builders and Home builder association members. To make it brief, the subdivision weekend traffic has picked up somewhat. Home buyers appear to still be on the fence as commitments (home deposits ) are still very low. Buyers appear to be waiting for the bottom of the housing fallout. Existing home market is a big problem for the home move up market. The first time homebuyer market, with clean credit, is helping most of the builders cash flow. From the builder perspective. Moving inventory is the number one priority. Home discounts truly puts every buyer in a position of the best value in years for their money. The supply definetly still outpaces the demand and probably will for some time. Most builders I spoke with are still pinning their hopes on a turnaround this year. Looking for a second half save. Jeff @ EOD Traders"