As predicted, it was only a matter of time before the U.S. Dollar fell below the psychologically important 100 yen mark. On Monday, March 14, 2008, the U.S. Dollar dipped below 99 yen, and fell to a record low against the Euro, following the announcement that Bear Stearns is seeking an emergency cash injection from the Federal Reserve and JP Morgan Chase. This news confirmed investors’ fears that the U.S. economy is, indeed, in a recession and it is likely that more big financial firms, such as Bear Stearns, are in a similar liquidity crisis.
The U.S. economic report issued on Friday, March 14, 2008, showed the inflation remained unchanged in February. Furthermore, the latest Consumer Sentiment Index report issued jointly by Reuters/University of Michigan clearly showed that the Index was at a new record low in many years.
Although authorities in Japan are concerned about the impact of a strong yen on their exports and corporate profits, they have yet to intervene in the currency market to weaken the yen against the U.S. Dollar.
All eyes will be on next week’s Federal Reserve meeting and the real questions is whether the interest rate cut will be 25 basis points or 75 basis points; some analysts are predicting that the Fed will cut interest rates by 75 basis points.