The deterioration in the U.S. economy is a fact. Stagfalation fear is well in place, adverse financial market developments is seen almost on a daily basis, and the worst news re the housing market is yet to come. According to forecast done by Dr. Gil Feiler, the FED wont have any other choice but to lower rate to 2.25 percent in one or two stages by mid 2008 in order to avoid slipping into recession. Since inflation is quite high, it seems that during the next year the FED will reincrease the rates to 3-3.5 percent.

As to government bonds, Feiler forecasts that 10 year bond yield which is currently 3.63 will rise to around 4 by the end of this year and will continue to rise to 4.4 percent by the end of 2009, while the 30 year bond yield will slightly rise from the current level of 4.5 percent to 4.55 and in 2008 and 4.70 percent at the end of 2009. These data suggest that the 30 year-10 year Govt. margin will decrease from the current level.

As for the USD, Dr. Feiler believes in the future strength of the greenback aginst the major currencies. As of now, the USD has been stongly sold against the major currencies. The JPY has been rising almost 19 percent against the USD since the July 2007 credit crisis. The CHF has been a strong performer, while the the dollar scrape new all time lows against the euro  of 1.5363 on Friday March 7, and the Australian currency reached a 25-year high versus the USD. However, according to his forecast the greenback will flex his muscells sooner than expected against major currencies, mainly due to more under performance in the EURO zone and UK economies, with the exception of the AUD, which might reach par with the USD, mainly due to high domestic interest rates and the JPY.

According to Feiler, USD per EUR will reach 1.46 by the end of this year and 1.35 by the end of 2009. USD per GBP will reach 1.87 and 1.74 at the same period. At the same time JPY per USD will be traded according to the forecast by less than 100 by the end of 2009.