Bernanke to cut rates ; dollar strengthens.

The Kin2 · Nov 29, 2007

Something doesn't smell right. Far too much strength in the dollar when the fed is just about ready to throw it off a cliff. I can't trade because I have no idea if the dollar will continue to rise despite the Fed cut, or collapse as one would expect. I'm not a TA, but I see no clear signals.

I wanna short the dollar, but I could easily easily be stopped even if it were 500 or 1000 pips away from entry.

Any thoughts on what's holding up the dollar when it has become painfully obvious that the fed will cut rates even when GDP was revised upwards of 4.9% q/q.

That's gotta be a first since the headline GDP is so strong. Unless GDP deflator is being manipulated...

If so bond traders are smarter than that. I know their is high inflation as the sky is blue. However the bond market is telling me their is low inflation, and CPI, PPI, and GDP deflator are confirming what the bond market is predicting.

ShoeshineBoy · Nov 30, 2007

Quote from The Kin2:

That's gotta be a first since the headline GDP is so strong. Unless GDP deflator is being manipulated...

Noone believes that GDP #. Last # was like 1%.

The question everyone is asking: "And now we're supposed to believe it jumped to 4.9%??"

poyayan · Nov 30, 2007

The bond market is telling us that money is rushing to t-bill. That means, they think recession will be worldwide, which will hammer commodity price and therefore inflation. That give Ben clear signal to cut rate. All those money rushing to T-bill hold up the dollar.

If it is a US only recession, money will flow out of US and t-bill yield will go up. So, if yield is up, growth slows. Then we are toasted and FED can't do jack anymore.

Check out how the yield fall...

Code:

Maturity 	Yield 	Yesterday 	Last Week 	Last Month
3 Month 	2.85 	2.93 	2.97 	3.81
6 Month 	3.16 	3.24 	3.16 	3.88
2 Year 	3.04 	3.18 	2.99 	3.80
3 Year 	2.99 	3.11 	2.89 	3.79
5 Year 	3.40 	3.49 	3.34 	4.05
10 Year 	3.94 	4.03 	4.01 	4.38
30 Year 	4.34 	4.43 	4.46 	4.67

ShoeshineBoy · Nov 30, 2007

Code:
Quote from poyayan:

The bond market is telling us that money is rushing to t-bill. That means, they think recession will be worldwide, which will hammer commodity price and therefore inflation. That give Ben clear signal to cut rate. All those money rushing to T-bill hold up the dollar.

If it is a US only recession, money will flow out of US and t-bill yield will go up. So, if yield is up, growth slows. Then we are toasted and FED can't do jack anymore.

Check out how the yield fall...

Code:

Maturity Yield Yesterday Last Week Last Month 3 Month 2.85 2.93 2.97 3.81 6 Month 3.16 3.24 3.16 3.88 2 Year 3.04 3.18 2.99 3.80 3 Year 2.99 3.11 2.89 3.79 5 Year 3.40 3.49 3.34 4.05 10 Year 3.94 4.03 4.01 4.38 30 Year 4.34 4.43 4.46 4.67

Thanks Professor Poyayan. Nice summary post.

Is that relationship true regarding the dollar though if money is fleeing US equities simultaneously. Isn't it net capital inflows/outflows that count?

Eliot Hosewater · Nov 30, 2007

Quote from ShoeshineBoy:

Noone believes that GDP #. Last # was like 1%.

The question everyone is asking: "And now we're supposed to believe it jumped to 4.9%??"

Does anyone believe any gummint numbers anymore?

Inflation is what, like 3%? Oh yeah.

The Kin2 · Nov 30, 2007

The bond market belives it.

number22 · Nov 30, 2007

There is so much liquidity that cause liquidity criss.

When did it begin that banks lost Billions likes millions in 10 years ago?

Funny.

piezoe · Dec 1, 2007

Quote from The Kin2:

Something doesn't smell right. Far too much strength in the dollar when the fed is just about ready to throw it off a cliff. I can't trade because I have no idea if the dollar will continue to rise despite the Fed cut, or collapse as one would expect. I'm not a TA, but I see no clear signals.

I wanna short the dollar, but I could easily easily be stopped even if it were 500 or 1000 pips away from entry.

Any thoughts on what's holding up the dollar when it has become painfully obvious that the fed will cut rates even when GDP was revised upwards of 4.9% q/q.

That's gotta be a first since the headline GDP is so strong. Unless GDP deflator is being manipulated...

If so bond traders are smarter than that. I know their is high inflation as the sky is blue. However the bond market is telling me their is low inflation, and CPI, PPI, and GDP deflator are confirming what the bond market is predicting.

There are many things the Fed does that can affect the dollar in addition to setting the discount and Fed funds rates. They are tight lipped on their trading desk activities for obvious reasons, but they may have been selling bonds, likely have been. Do not assume that the only thing they do is play with the discount rate.