A Rate Hike from the Fed in the near future is ‘zero’ possibility!

The Federal Reserve through two actions yesterday sealed its fate as far as raising interest rates in the near future.

In fact, its liquidity actions proves that the banking and financial markets in the U.S. is highly fragile and also that the U.S. requires financial support from external sources; the SNB and ECB.

Yesterday, the Federal Reserve announced that it will extend the repayment period for the repayment of its short term loans and extend more credit to banks and financial firms on Wall Street from its original expiry date of September 2008 to January 2009.

In a simultaneous move, the Federal Reserve also extended its credit facility with both the SNB and ECB for higher amounts.

What this also implies is that the U.S. Dollar’s strength will be capped and any move upwards should be an opportunity to sell the dollar. We believe the outlook for the U.S. Dollar relative to the other G7 currencies will be generally weaker over the next 12 months.