EMERGENCY FED MEETING

the Federal Reserve is meeting on Monday 04/05/2010 to discuss the discount rate. Its the only topic for discussion. I can only conclude that the Federal Reserve is interested in hiking the discount rate again.

Implications:

When the Fed raised the discount rate last time, the US Dollar rallied. So anyone long on USD/JPY may feel a bit more comfortable in their position. Of course, we have to get through NFP - its the quiet before the storm.

For a full detail of the announcement:

http://www.federalreserve.gov/board...advancedexp.htm

The Fed hiked the discount rate on Feb 18 so I went back and looked at the charts and saw that the dollar rallied across the board, here are my findings:

EUR/USD fell from 1.3615 to 1.3450ish
GBP/USD fell from 1.56ish to 1.53ish.
USD/JPY rallied from 90.5 0 to 92.00

Of course, there is a possibility the markets reaction may not be so strong this time as it is the discount rate, but I still see it as a dollar bullish event primarily because it is for short term borrowing and it signals tightening and normalization of monetary policy. The Fed expects to return to a 100 basis point spread for the discount rate BEFORE they start hiking funds rate. That means we need a 1.25% discount rate (it’ll be 1.00% or more on Monday if they hike it) for further reserve draining/fed fund hike. The US is also the only G-8 country at this time who is beginning to tightening monetary policy and remove excess stimulus measures.

The BoJ and ECB are no where near raising rates or removing stimulus.