The U.S. Dollar drops to lowest level against the Euro and the Yen as investors believe that more financial institutions will fall victim to the liquidity crisis which led to the acquisition of Bear Stearns by J.P. Morgan.
On Thursday, March 13, 2008, a large number of Bear Stearns customers drained the firm’s cash reserves. As a result, on the following day, the Federal Reserve announced it would provide funds through J.P. Morgan to ease Bear Stearns liquidity problems. In a surprise move, J.P. Morgan announced on March 16, 2008 that, with the assistance of the Federal Reserve, it had purchased the assets of Bear Stearns for $2 a share. Analysts believe that the timing of this announcement together with the interest rate cut of 25 basis points by the Federal Reserve was to calm the markets when they open on Monday March 17, 2008.
Despite these moves, on Monday, March 17, 2008 stocks in Japan fell by 4% and the U.S. Dollar fell against the Yen to its lowest level in 13 years. The Euro also surged to an all time high of $1.5905 before falling back to $1.5866.