Today, the Federal Reserve Bank lowered interest rates for the second time in as many weeks, bringing its benchmark federal funds rate down to 3.00%.  The Fed has now lowered rates by 2.25% since August. The move came as a relief to investors, who now see that the Fed is serious about preventing the economy from slipping into a full-scale recession. However, it remains to be seen whether the rate cuts will provide the necessary boost to the economy or instead prove too little too late. As far as the Dollar is concerned, the rate cuts carry two (conflicting) implications.  On the one hand, the economy and stock market could rally, which would likely be matched by a Dollar rally.  On the other hand, the interest rate differential between the US and EU is now a 1% and risk-averse investors hungry for yield will be hard-pressed to justify shifting capital to the US. The New York Times reports:

Many economists are far from convinced that even a combination of tax rebates and cheaper money would prevent a recession. And in a sign that bond investors are fretting that the moves could lead to higher inflation, yields on 10-year and 30-year Treasury securities edged up slightly on Wednesday.

Read More: Fed Cuts Key Rate as Stimulus Plan Advances

For at least the duration of the current administration, the official US stance towards its currency has been a "strong dollar" policy.  In hindsight, it appears that this policy was entirely baseless, since its was directly undermined by the simultaneous easy monetary policy, and thus it stands to reason that US policymakers did not actually believe that a strong Dollar policy was necessary to pursue.  In a recent op-ed piece published in the Wall Street Journal, one analyst outlines the case for a strong dollar, and by extension, why the depreciating Dollar is bad for the US economy. 

First, since oil contracts are settled in Dollars, a weak Dollar has directly contributed to high oil prices, which has several negative economic and geopolitical consequences. Second, a cheap Dollar is eroding the purchasing power of US consumers directly by making imports more expensive and indirectly through inflation. Third, the weak Dollar shifts the balance of economic power in favor of US competitors, which don't need to grow as fast to keep pace with the US, in Dollar terms.  Finally, the recent weakness threatens the long term reserve status of the Dollar, which has important implications for economic growth and jobs creation.

On the other hand, argues the analyst, the conventional wisdom that a declining Dollar is necessary to correct the current account and trade deficit is bunk, since much of the trade deficit is accounted for by intra-company trade and since the current account deficit is generally overstated and not connected to currency valuations. In short, he argues, it is in the best interest of the US to align its rhetoric with its economic and monetary policies such that the long term luster of the Dollar is restored.

Read More: The Dollar and the Market Mess

When America's dot-com bubble collapsed in 2001, the Federal Reserve Bank moved quickly to quell the panic by slashing interest rates.  The European Central Bank (ECB), on the other hand, was adamant that it would not have to follow suit since the European and American economies were no longer so intertwined.  Several months later, it became increasingly clear that the ECB was wrong, and it was ultimately forced to lower rates.  Now, some analysts fear that history is repeating itself, as America's housing crisis threatens to run a similar course as the collapse of the stock market bubble. The Fed has lowered interest rates twice in the last few months, while the ECB has yet to act, insisting that its primary concern is inflation. For now, the interest rate differential is supporting the Euro, but if the ECB falls behind the curve, a stagnating EU economy could bring down the common currency.  The New York Times reports:

But when it comes to the economy, Europe remains optimistic it can decouple itself and withstand collateral damage from a possible recession in the United States.

Read More: Why the European Bank Is Sitting Back

Last week, the Bank of Canada cut interest rates by 25 basis points, bringing its benchmark lending rate down to 4%.  Fortunately for the Canadian Dollar, the rate cut paled in comparison to the 75 basis point move effected by America's Federal Reserve Bank. While the Bank of Canada offered a hackneyed rationale of "keeping aggregate supply and demand in balance"  for the change in monetary policy, there is still some surrounding haze since Canadian inflation is rising and economic growth is strong. The currency had slipped below parity against its American counterpart, but is now slowly crawling its way back. If commodity prices remain high, the currency will likely push back across that psychologically important barrier of 1:1 with the USD.

Read More: Canadian dollar firms as BoC cuts rates

The South African Rand is not the subject of much analysis in the forex community, which typically confines itself to the majors and the BRIC currencies - Brazil, Russia, India, and China. But recently, the Rand found itself on the radar screen  of at least one analyst, who pondered the implications of a growing trend towards risk aversion. It appears that the Rand has resumed a clearly identifiable downward path against the Dollar, a course which had been temporarily interrupted in the early years of the decade.  Now, inflation is picking up  again and investors globally are becoming more hostile towards risk, two factors which bode ill for the Rand.  On the other hand, South Africa is rich in natural resources; judging from the performance of the Canadian Loonie and the Australian Dollar, commodity economies are still in vogue. The Times reports:

The curve ball for precious metals would be a sustained stronger dollar, unlikely while the US economy is in its current predicament and the Fed is cutting rates.

Read More: A warning to beware of banking on the rand

Caterpillar ha reso noto di avere chiuso il quarto trimestre dell’esercizio con ricavi in aumento del 10% a 12,14 mld di dollari e con un utile netto pari a 975 mln (1,50 USD per azione), in crescita rispetto agli 882 mln del corrispondente periodo dello scorso anno. Per il 2008 la società ha previsto una robusta crescita fuori dagli Stati Uniti, dove invece la recessione resta una precisa minaccia. Il gruppo ha così confermato una crescita dei ricavi compresa tra il 5 e il 10% rispetto ai 45 mld del 2007 e un aumento dell’utile per azione tra il 5 e il 15% rispetto ai 5,37 USD dell’anno che si è appena concluso.

(14:13:50 25/01/2008)

Aggiornamento su futures:

Dow Jones +0,60% a 12.438 punti

S&P 500 +0,80% a 1.362,70 punti

Nasdaq +1,10% a 1.857,00 punti

T-Bond -0,44% a 118,43 punti

Euro Bund -0,02% a 115,93 punti

S&PMib +1,93% a 34.875 punti

(14:03:18 25/01/2008)

Secondo indiscrezioni di mercato, il miliardario Wilbur Ross sarebbe in serie trattative per acquistare Ambac Financial Group, bond insurer caduto in difficoltà con lo scoppio della crisi dei mutui subprime.

(13:56:07 25/01/2008)

Harley-Davidson ha comunicato di avere chiuso il quarto trimestre dell’anno con vendite pari a 1,39 mld di dollari, calo del 7,7% rispetto al corrispondente periodo dello scorso anno a causa del rallentamento del mercato americano. L’utile netto si è attestato a 186,1 mln, o 78 centesimi per azione, in flessione del 26% rispetto ai 252,4 mln del pari periodo del 2006.

(13:35:39 25/01/2008)

Trevi ha comunicato di aver costituito la controllata al 100% Trevi Energy S.p.A. con lo scopo di svolgere, per conto proprio o per conto terzi, attività di progettazione, ingegneria e sviluppo nel settore delle energie rinnovabili. Trevi ha spiegato che la costituzione di Trevi Energy è principalmente attribuibile alla volontà non solo di adattare al settore alcune delle tecnologie già sviluppate e collaudate nel core business e nel drilling, ma anche per maturare nuovi sistemi tecnologici appropriati e innovativi per un settore in prevedibile forte espansione futura. Il gruppo guarda, in particolare allo sviluppo del settore eolico, con particolare riferimento al segmento offshore in cui le fondazioni speciali delle torri eoliche rappresentano un importante fattore critico e una delle principali componenti di costo.

(13:20:09 25/01/2008)