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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