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Possible AIG Bailout Calms Market

Wed, Sep 17 2008, 21:15 GMT
by Korman Tam

Forexnews.com

9/16/2008 9:50 PM: EUR/$..1.4189 $/JPY..106.36 GBP/$..1.7870 $/CHF..1.1212 AUD/$..0.8031 $/CAD..1.0672

Possible AIG Bailout Calms Market

The dollar regained its footing against the majors in New York trading following a volatile session of sharp movements– recovering above the 106-handle against the yen and moving back toward the 1.41-region versus the euro. Fears of an impending collapse of insurance giant AIG were tempered amid speculation of a government bailout with rumors for a potential $85-$90 billion bridge loan being extended by the Federal Reserve. The US equity bourses also recouped some of Monday’s sharp losses, with the DJIA edging higher by 1.3% and the Nasdaq up by 1.28%.

The FOMC left interest rates unchanged at 2.0% when it announced its monetary policy decision on Tuesday afternoon, revealing a unanimous vote to stand pat. Although Fed acknowledged that “strains in financial markets have increased significantly and labor markets have weakened further”, it stuck to its mantra that “the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth”. The FOMC maintained its neutral outlook citing lingering inflation with a highly uncertain outlook.

The economic reports released saw August CPI ease somewhat, with the headline CPI figure posting a 0.1% drop versus an increase of 0.8% in the previous month and lower at 5..4% compared with 5.6% a year earlier. The core CPI figures declined as well, easing to 0.2% from 0.3% in the previous month and unchanged on an annualized basis at 2.5%. Meanwhile, the July overall TIC flows posted a $74.8 billion net outflow compared with a $51.1 billion inflow from June.

On Wednesday traders will digest housing reports from the US including August building permits, housing starts as well as the current account deficit for Q2. Housing starts are estimated to decline slightly to 960k, down from 965k from July while building permits are seen slipping to 930k from 937k a month earlier. The August current account deficit is expected to increase to $179.4 billion, up from $176.4 billion a month earlier.

Published on  Wed, Sep 17 2008, 21:16 GMT