The conclusion of last week’s trading is that US economy is already in a recession. A series of weak housing and capital spending data has convinced more investors from the cyclical downturn and supported expectations for a big FED rate cut from the current 2.25 percent.

The Bear sterns news two weeks ago hit the dollar hard, but the green back bounced strongly after the fed cut rates less than expected last week.

Last week started rather well for the Dollar as the greenback bounced back after the Federal Reserve cut interest rates less than expected by 0.75% to 2.25% the week before. The market had been pricing in up to 1% in an effort to gain some control on the rapidly deteriorating US economy.

However the Dollar soon dropped away as the Fed opened up a ‘Discount Window’ whereby they offered discount lending to major investment banks in an effort to try to ease concerns over the global credit crunch. This is something that the Federal Reserve has not had to do since the Great Depression. This gave Dollar purchaser a short respite and the availability to buy their Dollars once again above the $2.

Toward the end of the week the Dollar rallied and made up some ground on the back of Quarter 4 GDP figures and housing data, which showed that existing and new home sales were better than expected. However, unsurprisingly consumer confidence showed another fall and perhaps reflects the further sentiment of the wider market.

Looking ahead the cable remains volatile, and can be swayed by both US and UK data. However, with the US having only just cut their rates, it could be Sterling that is on the back foot, especially as further rate cuts in the UK are expected.