Fed fractionalizes funds rate to market cheer

The stock market cheered the US central bank’s historic interest rate cut today, surging nearly 5% on the S&P 500 back above 900 to 911.82. The rate cut, combined with continued quantitative easing in Treasury bonds was evident in today’s trading, with a flood out of US dollars in to commodities and other currencies as well as bond yields dropping sharply.

The implications are clear. Inflation will begin in some measure of time, whether it is days, weeks or months. We can see traders already preparing by taking long positions in anything that stands to benefit from the dollar’s fall. Near term we could see the US dollar index fall as low as 72, retesting its prior lows and further confirming the head and shoulders pattern. Commodities and currencies remain attractive buys.

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