Treasury Outlook

The situation turned upside down from the previous quarter, when markets were obsessed by writedown news day by day. The question that comes to mind is, what brought the dollar back to health? Is it because the US economy is in better shape or other regions are weaker than the US?

The impact of the financial crisis is gigantic. It is not only not limited to the US but also its bang stretches throughout other regions.

The Japanese economy shrank 0.8 per cent in the second quarter while the EU contracted by 0.2 per cent, the first time ever since the European Union was established in 1993.

Moreover, the European Commission cut its eurozone growth forecast from 1.7 per cent to 1.3 per cent this year.

In reverse, the US economy expanded by 0.83 per cent last quarter, making it appear that the dollar has emerged in better shape than others.

Nonetheless, the US economy is still overflowing with bad news, which we are still hearing almost every single day. If we roll out the name list of victims from the current crisis, the nametags might be even longer than China's Great Wall.

Lehman is the newest casualty, filing for Chapter 11 bankruptcy yesterday after failing to find bidders who could inject new funds and reorganise the company.

Previously, the market expected the US Federal Reserve to keep interest rates on hold at least until yearend, but market perception changed after the Lehman news.

The Fed might take some action at the open market committee meeting tonight by cutting the policy interest rate from the current 2 per cent, easing the markets' concerns and fears.