Forex

16:55 02/27 (CEP News) Montreal – In his bi-annual testimony before Congress Wednesday, Federal Reserve Chairman Ben Bernanke signalled further rate cuts may be coming when he said the central bank is ready to act “in a timely manner” to support the country’s slowing growth.

Appearing before the House Financial Services Committee on Wednesday, Bernanke outlined the difficulties the Fed faces in making decisions to best revive the economy. Even though the Fed has made drastic rate decisions in part to respond to sudden and severe tightening in credit markets, the rising interest rates consumers are seeing, especially on mortgages, have blunted the effects of the Fed rate cuts, he noted.

Economists said the language in Bernanke’s testimony was a pretty clear signal the Fed is prepared to cut rates at its March meeting, likely by as much as 50 basis points. "A phrase about providing 'adequate insurance' for downside to risks — those are pretty clear signals that they're contemplating lowering rates further," said Paul Ashworth, U.S. economist with Capital Economics.

Not surprisingly, new orders for U.S. durable goods fell sharply in January, down 5.3% or $12.0 billion to $212.8 billion, after two previous months of gains, according to the advance report issued Wednesday by the U.S. Department of Commerce. Durable goods excluding transportation fell 1.6% in the month from a prior 2.0% gain, and new orders excluding defence sank 4.7% from a prior month 2.1% increase. The consensus forecast was looking for a decline of 4.0% in headline durable goods orders and a 1.4% fall in orders excluding transportation.

The core capital goods number, non-defence capital goods excluding aircraft, slipped 1.4% in January after posting a revised gain of 5.2% in December. Economists noted that the core figure is a proxy for future capital spending.

U.S. government-sponsored home lenders Fannie Mae and Freddie Mac have been permitted to remove restrictions on their mortgage portfolios, the U.S. Office of Federal Housing Enterprise Oversight said on Wednesday. Fannie Mae posted a worse-than-expected US$3.6 billion loss earlier on Wednesday as home foreclosures in the country continue to rise. OFHEO said the removal of the caps came in part because of the release of timely, audited financial figures even though an unexpectedly large loss was reported.

New home sales in January added to the gloom and doom of home builders, falling 2.8% in the month to a seasonally adjusted annual rate of 588,000, the U.S. Census Bureau reported Wednesday. However, December sales were revised upward by 1,000 to 605,000. The consensus forecast was looking for new home sales in January to come in at 600,000 and a decline of just 0.7% after falling a revised 4% in December. For the year, new home sales declined by 33.9%.

The U.S. Department of Energy noted a 3231k rise in commercial crude oil inventories in the week ending Feb. 22. The build was higher than the 2700k expected, but lower than the 4204k reported last week. After declining 6736k in the first week of 2008, supplies have increased in seven consecutive weeks. Gasoline stocks unexpectedly increased 2355k against expectations of a 375k gain. Meanwhile, distillate inventories declined 2575k against the consensus analyst estimate of -2200k.

Federal Reserve Governor Frederic Mishkin said the whole economy benefits when citizens are equipped with financial and economic literacy, adding that a widespread understanding of economic principles may have prevented the ongoing strains on the economy. Mishkin made no comments on monetary policy, the economic outlook or inflation concerns.

Deputy Treasury Secretary Robert Kimmitt said today that the United States must remain committed to free trade and cross-border investment, especially as the economy slows and protectionist sentiment rises. Emphasizing the importance of investment for the U.S. and the global economy, Kimmitt said investment flows offered substantial benefits to countries open to free trade.

Speaking in Toronto, Canadian Finance Minister Jim Flaherty expressed surprise at the opposition of Tuesday's budget proposals for 2008, saying that the budget would have shown a deficit if the government had given in to demands of opposition parties. Flaherty said that he expected the Canadian government to continue to post budget surpluses. However, surpluses should continue to become smaller in the coming years, he said, adding that the Canadian government had managed to pay off C$27 billion in debt over the last two years.

Speaking at a press conference in Ottawa, Canadian Trade Minister David Emerson expressed concern about protectionist comments from U.S. democratic candidates on Wednesday. Referring to comments from U.S. democratic candidates Hillary Clinton and Barack Obama that the NAFTA agreement might need to be reworked, Emerson said that should the United States decide to reopen the NAFTA talks, Canada would also seek changes to the agreement.

Public and private capital spending in Canada is expected to increase 5.2% in 2008 – the sixth straight year of gains in current dollar terms. Statistics Canada surveyed 28,000 businesses and government offices and reported planned capital spending of $339.45 billion, with non-residential construction and investments in machinery and equipment leading the gains. StatsCan said non-residential construction spending will increase 7.9% while investment in machinery and equipment will grow by 5.7%.

The Polish Central Bank hiked its benchmark interest rate 25 bps to 5.50% on Wednesday morning, citing building inflation pressures. Economists had been divided nearly down the middle as to whether the Bank would hike rates.

Speaking in New York, Dutch Central Bank President Nout Wellink said there we no decoupling between the U.S. and euro zone economies. He said the European Central Bank had to carefully monitor inflation pressures and that no second-round inflation pressures had manifested thus far. He also said the euro zone economies were doing quite well.

Speaking in Bonn, Germany, Bundesbank President Axel Weber said that market rate expectations were underestimating inflation, and that inflation would not slow down as much as forecast. Looking to next year, he added that inflation in 2009 will not be as low as forecast in December and that the expected return to price stability has been delayed.

Bank of England's Deputy Governor Sir John Gieve acknowledged on Wednesday that global money markets continue to remain "difficult" and "sticky" despite clarity provided by financial statements disclosing losses by private banks and a string of coordinated efforts by the central banks of Canada, EU, UK and U.S. In a speech at the Euromoney Group's Bond Investor Congress in London, Gieve implied the reason why this was happening is because fears about the economic outlook, especially that of the U.S. were gaining ground in investors' mindset.

Seasonally adjusted euro zone M3 money supply grew 11.5% year-over-year in January, slightly lower than December’s 11.6% growth rate but higher than the forecasted 11.3% figure. December’s figure was revised up from 11.5%.