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Managed Foreign Exchange Accounts EUR/USD Outlook 2008 2/3
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What Rate Cuts Can Be Anticipated
The US Fed has not precisely been forthcoming in its rate cuts; somewhat, it lowered rates very reluctantly in 2007. It has given solely what the forex markets have already priced in. The basic cause for their hesitation is the need to include inflation ? the exact same concern that weighs heavily on all other central banks within the world. The Fed needs to make certain inflation remains under control. Doing that has been tougher due to the excessive vitality prices coupled with the weaker dollar. Thankfully, indications of power prices reaching $a hundred per barrel are no longer in circulation.
The market expects the Fed to additional ease interest rates another 25 to 50bp decrease; nevertheless, this is not the only option. They may want to further explore their different options, including the Term Auction Facility they launched in December. However these options, together with a minimize in the discount charge, are limited particularly since LIBOR rates have remained at high levels. Whilst late as December, Treasuries posted one-day increases that had been the very best seen within the final three years.
Who Else Might Make A Play
In the closing months of 2007, the crumbling markets were shored up by massive investments from sovereign funds. Temasek Holdings, owned by Singapore, invested $4.4 billion in Merrill Lynch; state-owned Abu Dhabi Investment Authority plowed $7.5 billion into Citigroup; and, China Investment Corporation invested $5 billion in Morgan Stanley. Sovereign wealth funds have been in existence because the mid-twentieth century. From an estimated $500 billion complete measurement in 1990, these funds at the moment are regarded as price $three trillion. The states of Norway, Singapore, the U.A.E., Saudi Arabia, Kuwait and China have between them an estimated $2 trillion accessible for rapid spending. Given eight extra years, these funds could have complete capital of $12 trillion, repeatedly built up from their natural sources and foreign exchange reserves. Investments from sovereign wealth funds have ? and possibly will proceed ? to be significant elements in serving to the US monetary markets recover.
How the 2008 US Presidential Elections Could Affect Monetary Markets
The historical development reveals extra bullishness for the US dollar when Republicans achieve leadership than Democrats. Whether or not this development will hold relies on how close the 2008 elections will turn out. The Inventory Merchants Almanac makes the general remark that election years show modestly constructive progress within the US stock market. Within the last five decades, election years have shown a 9.2% average gain within the Dow Jones index.
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