Late Tuesday, March 11, 2008, the U.S. Dollar surged against major currencies after news of a joint effort by central banks around the globe to inject $200 billion into the troubled financial market. The U.S. Federal Reserve Bank, together with the European Central Bank, Bank of Canada and Swiss National Bank, have pledged to provide loans to financial institutions in exchange for debt, including those backed by mortgage securities.
Comments made by Jean-Claude Trichet, the European Central Bank president, at the G10 meeting held on March 10, 2008 in Basel, Switzerland, caused a dip in the value of the Euro and other major currencies against the U.S. Dollar. According to Trichet, “excessive volatility and disorderly movements in the exchange rates are undesirable for economic growth.” While his remarks were similar to those he made last Thursday after the European Central Bank made the decision not to cut interest rates, this time, his commentary was considered stronger.
The U.S. Dollar continues to fall against major currencies as the U.S. Labor Department announced that the U.S. economy lost approximately 63,000 jobs in February 2008. This report is perceived as a good indicator of U.S. economic performance, showed that the payroll in the non-farm sector decreased for the second consecutive month.
On Friday, March 7, 2008, the U.S. Dollar recovered from all-time lows as the Federal Reserve increased liquidity in the financial system. This liquidity injection has heightened speculation that, in the short term, the Federal Reserve will not aggressively cut interest rates, even though recent reports show that activities in the U.S. service sector contracted in February of this year.
The decline in the value of the U.S. dollar continued on Thursday, March 6, after the European Central Bank decided to keep its benchmark interest rate unchanged at 4.0 percent. Furthermore, the release of grim U.S. economic reports confirmed that, while demand for products from U.S. factories fell sharply in January, the U.S. service sector shrank.
Should Japan invest some of its huge state-owned reserves, estimated at $1 trillion dollars, to revitalize its economy? According to analysts, Japan’s foreign exchange reserves are the world’s second largest, behind China.
On March 5, 2008, the U.S. Dollar rebounded slightly against major currencies as foreign exchange managers squared up positions in advance of the release of various U.S. economic data. Yesterday, the Euro was trading as high as 1.5250 USD, but this was short lived, because investors do not have a complete picture of the health of the U.S. economy and as such, cannot anticipate whether or not the fed will cut interest rates at its next meeting on March 18th. Both the anticipated data and the available corporate information would certainly determine the extent of the fed’s rate cut.
The national currency across the UAE is the Dirham, which has an exchange rate tied to the US Dollar. As it is with other currencies, it also evolves with the US Dollar.
Analysts have estimated that China’s foreign exchange reserves increased by approximately $80 billion in January, 2008, mainly as a result of capital inflows from Hong Kong.
The value of the U.S. Dollar has continued its downward trend against the Euro for a fifth successive trading session, and on March 3 , it dropped to a new record low of $1.526 against the Euro, as a result of escalating concerns over the state of the U.S. economy