The greenback tumbled to 98.89 against the Japanese yen, the lowest since September 1995, and slumped to a record low of 1.5690 per the euro after JPMorgan Chase & Co. and the New York Federal Reserve bailed out Bear Stearns Cos. due to the widening of credit market losses.
The U.S. currency also plunged to a fresh record low of 0.9971 versus Swiss franc on speculation that the Fed will cut interest rates one percentage point next week to avert a recession. Interest-rate futures showed a 50% chance that the Fed will cut its target rate by one percentage point to 2% next week, from zero percent on Friday, There was a 50% chance of a 75 basis points cut to 2.25% from present 3%. Traders also see a 50% chance of a cut to 1.75% in April.
European Central Bank council member Klaus Liebscher said he was ‘very concerned’ about the dollar's ‘dramatic’ decline, He also said recent currency volatility is ‘excessive’. Japanese Finance Minister Fukushiro Nukaga said abrupt currency moves are ‘bad’ for economic growth. President George W. Bush said on Friday that the U.S. believes in a ‘strong dollar’.
On the data front, the government report showed underlying U.S. inflation was unchanged in February, which eased some concern that the U.S. economy was heading toward a period of low growth n high inflation. The University of Michigan survey came in at 70.5 (forecast was 69.0) in March versus the reading of 70.8 in February.
Goldman Sachs Group Inc. and Morgan Stanley said coordinated action by policy makers to stem the currency's slide is increasingly likely. However, there was little reaction on the foreign exchange market.
Next week will see the release of Japan’s tertiary industry index and leading indicators, U.S. current account, Empire state manufacturing, capital flows data, industrial production, capacity utilization, Midwest manufacturing and NAHB housing market index on Monday; Japan’s industrial production, U.K. CPI and RPI, U.S. PPI, housing starts, building permits and closing watched FOMC rate decision on Tuesday; Japan’s all industry index, U.K. claimant count and ILO unemployment, eurozone trade balance and U.K. CBI industrial trend on Wednesday; German PPI, PMI manufacturing and service respectively, U.K. retail sales and PSNCR, U.S. jobless claims, Philadelphia Fed survey and leading indicators on Thursday. All major financial markets will be closed on Friday due to holiday.