e yen was the biggest gainer at the start of the week as safe-haven flows propped up the Japanese currency, pushing it to 138.12 against the sterling and 117.45 versus the euro. The greenback also edged higher against the majors, surging versus the pound to 1.4805 while edging up toward the 1.26-region against the euro.
With revelations from the NBER that the US economy has been in a recession since December 2007, the major US stock bourses collapsed as the Dow Jones sank by 7.7%, and both the Nasdaq and S&P 500 plunging by nearly 9%. The selling accelerated following comments from both Fed Chairman Bernanke and US Treasury Secretary Paulson.
Bernanke acknowledged the predicament the Fed finds itself in and expressed further pessimism over the economic outlook. He said, ¡°Although further reductions from the current federal funds target of 1% are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited¡±. Moreover, he expects the economy to remain weak for some time. Bernanke also suggested the Fed could purchase longer-term Treasuries or agency securities on the open market in substantial quantities in an effort to ¡°spur aggregate demand¡±.
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