Many people may feel like dumping US stocks, but apparently, this sentiment doesn't have a lasting effect on the US dollar. Monday hasn't been a pleasant day for stocks, but in the forex markets, many institutional traders have rushed to buy US dollars in the midst of all these historical changes in the US financial markets even though the Empire state manufacturing data came in softer than expected. People in America wake up to the fact that two US investment banks have gone the way of dodo birds, got panicked and sold stocks, but then, the US dollar sentiment remains firm.

Initially the US dollar got sold heavily against the Euro, Swiss franc, British pound and the Japanese yen when the Asian markets first opened on the news of Lehman Brother's (LEH) bankruptcy, but a few hours later, it managed to erase all of its previous losses and even rallied in New York trading. EUR/USD rose to a high of 1.4485 but is now trading below 1.4200. USD/CHF found support around 1.1055 and is now hovering around 1.1200.

The Dow Jones Industrial Average [[^DJI]] opened lower on panic selling during stock trading; shares of RIP Lehman and insurance giant AIG (AIG) were brutally whacked by short-sellers and investors desperately trying to cut their losses.

It suddenly dawned on many people that the Fed has not helped too much this time - everyone was waiting for Daddy Fed to come to the rescue of their good buddy Lehman, but Daddy Fed may have realized that he couldn't help all the boys on Wall Street. Maybe it's time he tells them that they are all big boys and should learn to fend for themselves.

Next immediate question is not, 'Which bank will fail next', but rather, 'Will the Fed cut interest rates on Tuesday?' We are now staring at a major upheaval in the financial markets, so there's no doubt the Fed might be a little more concerned about the financial system in the US than before, especially now that more companies may be calling on the Fed for special loans. The Fed is widely expected to keep rates unchanged at 2%, but there is a growing likelihood that it may slash rates in a surprise move Tuesday so as to calm the nervous stock markets.

Oil prices have been falling, so upside risks of inflation may be relegated to the backseat, giving the Fed more room to ease rates in order to sooth the markets. The current financial turmoil takes the center stage; is any trader still keeping an eye on Hurricane Ike? Not really it seems, as crude oil falls below $96 in intraday trading Monday.

Economic Calendar For Tuesday:

Bank of Japan rate decision (rate expected to stay at 0.50%)

Reserve Bank of Australia releases board minutes 0130 GMT

German CPI 0600 GMT

UK CPI, retail price index 0830 GMT

German ZEW 0900 GMT

Eurozone CPI 0900 GMT



US FOMC rate decision 1815 GMT (rate expected to stay at 2%)