• The US dollar hit record lows versus the euro and the Swiss franc, and 12-year troughs against the Japanese yen as economic and credit conditions deteriorated, causing investors to price in a 50% probability of a 100 bp rate cut by the Fed at the March 18 FOMC meeting.

• The latest batch of economic reports suggests that the US housing downturn has spread to other sectors, with activities in both manufacturing and non-manufacturing industries contracting. US employers are also cutting jobs and consumers are scaling back. In fact, the US economy might already be in recession.

• In addition, the credit crisis deepened with more financial institutions reporting larger than expected write downs on their subprime mortgage linked bond portfolios. Then Bear Stearns, which is the fifth largest investment bank in the US, announced that it had liquidity problems on March 14 and had to be bailed out by the Fed, investors feared that the worst was yet to come. Growing uncertainty led to a broad widening of credit spreads and panic selling of the dollar.

• In the past week alone, the dollar has fallen over 6% against the yen and Swiss franc, and 4% versus the euro. For the year to date, the dollar's respective declines were 13.9%, 13.1% and 7.8%.

• With dollar sentiment being overwhelmingly bearish, the dollar could fall further against other majors. However, when calm is restored and other central banks start cutting interest rates to prevent a slowdown of their economies, the dollar's fortune could turn around.

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