Dollar Continues its Decline as World Market Worries Over US Financial Markets
On Monday, as investor jitters are increasingly shaken that more financial institutions could become casualties in the widening U.S. financial crisis that led to JPMorgan Chase acquiring investment bank Bear Stearns, the U.S. dollar tumbled to a record low against the euro.
The market shrugged off news late Sunday that the Federal Reserve had lowered its discount rate to 3.25 percent from 3.5 percent and said that it was creating a facility to let primary dealers borrow at that rate.
The move came after Bear Stearns' cash reserves were drained by fleeing customers on Thursday. On Friday the bank secured emergency funding from the Fed, extended through JPMorgan.
JPMorgan said on Sunday it would buy Bear Stearns in an all-stock deal, and that the Fed would fund up to $30 billion of Bear Stearns' less liquid assets. "Market players are afraid that there will be a second and third Bear Stearns out there," said Kosuke Hanao, head of forex sales at HSBC in Tokyo.
The dollar fell sharply, hitting record lows against the euro and Swiss francand striking a 12 year low under 97 yen, on deteriorating confidence in U.S. assets due to tightening credit conditions and concerns that the world's biggest economy is already in a recession.
Investors have dumped the dollar in recent months on doubts about the Fed's ability to handle a spreading crisis in the U.S. mortgage bond market, which is causing credit market turmoil and offsetting its efforts to help the economy by slashing rates.
Published on March 17, 2008
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