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Fed Steps In with a Discount Rate Cut
Like a concerned trainer watching financial assets clobbered by panic selling and drying liquidity, the Fed has thrown in the towel this morning with a 50bp rate cut in the [U]Discount ([url]http://www.federalreserve.gov/monetarypolicy/discountrate.htm[/url]), not the Fed Funds, rate[/U] to 5.75%. The decision appears to be timely and effective as gauged by steepening of the yield curve which reflects investor confidence over different time periods. The shorter end has dropped several basis points while the 10-yr and 30-yr yields rose steeply. Implications of an awakened Fed and cheaper credit has benefited the banking sector first and foremost. XLF - the financial sector ETF - is up over 5% in pre-market activity with the broader market likely to follow. The currency impact is notable as well with the carry trade funding currency - yen - falling sharply in the aftermath relative to the greenback while also reversing the dollar gains seen from the zapped low interest borrowing to fund the assets of the high yielders such as Sterling, Aussie, and NZD.
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- Aug 17, 2007 9:51am Aug 17, 2007 9:51am
- Gary Deduke
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- Aug 17, 2007 10:21am Aug 17, 2007 10:21am
- Gary Deduke
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- Kenny Clayton
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- DutchTrader
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- Spineynorman
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