Interest Rate Cut Sends the Dollar Down Across the Board
Posted on 18. Dec, 2008 by admin in USD Analysis, USD Economic Analysis, USD News
The Dollar took a big plunge on the heels of the Federal Open Market Committee’s surprising move. On Tuesday the Fed slashed rates to the floor, down to 0.25%. Most analysts had forecasted the rate to sit at 0.5%. The Fed seems to be sending a clear sign that they will supply the necessary liquidity to the market, as U.S. Interest Rates will effectively be 0%. Other aggressive measures that may be taken by the Federal Reserve are buying agency debt, mortgage debt, and perhaps even U.S. treasuries. Flooding the market with Dollars for liquidity purposes is likely to be the reasoning behind the Fed’s actions.
The EUR/USD ended the day at 1.4430, breaking a key 1.4400 level. Big price jumps were seen as early as yesterday morning from low levels of liquidity, as the year end approaches along with the holiday season. The GBP/USD closed up 1.5533, and the JPY strengthened to a 13 year high to close at 87.71.
More negative U.S. Unemployment Data is due today at 1:30pm GMT. Look for the Dollar to continue its plunge, perhaps to the 1.4600 level by the days end. The low U.S. Interest Rates may signal continued weakness in the Dollar going forward. With an Interest Rate effectively at 0.0%, this will give investors little advantage to hold Dollars over other currencies.
