Well, the Fed met last week and the dollar lost.
Now, with the release of the second quarter GDP figures, there is little or no incentive for the Fed to raise its policy rate this year.
Things were not looking good for a raise anyway but the GDP number sealed the deal.
Year-over-year, real GDP rose by 1.23 percent.
Economist seemed surprised, as some had put out expectations of a growth of 2.50 percent quarterly rate of growth, annualized, substantially above the 1.21 percent quarterly rate, annualized.
I don't know why they were so surprised, the numbers on industrial production had not been very robust and over the past several years, real GDP growth and the growth of industrial production have paralleled each other rather closely.
Oh, by-the-way, the US economy celebrated the seventh anniversary of its current recovery.
The compound, annual rate of increase of the US economy over these seven years is 2.07 percent.
The Federal Reserve has achieved the short-run objective set for it by former Fed chairman Ben Bernanke. Within the last two weeks, the Dow Jones Industrial Average and the S&P 500 stock index hit new historical highs.
The "wealth" effect Mr. Bernanke wanted to achieve…has been achieved…and personal consumption expenditures continue to drive the economic expansion.
However, the business community doesn't seem to be involved in the expansion. Corporations seem to be too interested in stock buy backs and increasing dividends. Businesses just don't seem to want to put out any money for capital expenditures.
And, the economy is just not going to expand very rapidly without businesses contributing their "multiplier" effect on output and employment.
Within this environment, officials at the Federal Reserve just cannot raise interest rates anytime soon. The political effect of such an increase in an environment like this would be overwhelming.
As a consequence, the value of the US dollar dropped.
This morning one had to pay almost $1.1170 to buy one Euro.
Last week, before the meeting of the Federal Open Market Committee, it took only about $1.0975 to buy a Euro. This represents a drop of just under 2.00 percent in a week's time.
And, the word is out on Wall Street, expect worse.
Over the past year or so, I have been arguing that the financial markets wanted the Fed to raise its policy rate of interest and one of the reasons for this increase was desired was that market participants wanted to see the Euro trading around $1.06 to $1.08.
One of the reasons for this valuation was that the European Central Bank was attempting to see a lower value for the Euro so as to stimulate exports from the European Union so as to help restore economic growth back to the continent.
The ECB had moved interest rates within the EU into negative territory in order to accomplish this due to low interest rates in the United States.
Now, in the short-run, the price of the Euro will probably go back into the $1.13 to $1.15 range where it had been last year during times market participants were disappointed in the Fed's willingness to raise interest rates.
The question then becomes, whether or not the ECB will try to take short-term interest rates even lower to maintain an edge for European exports in world markets.
This, of course, raises the specter of a currency war…something that has been at the edge of discussions on foreign exchange ever since the Federal Reserve ceased its third round of quantitative easing in October 3024.
Right now, the course the world seems to be heading into is a world with a lower value of the US dollar.
The big concern that now faces the Fed is the concern over the weakness of US economic growth. Yes, consumption expenditures continue to grow, but there is little or no business buy-in.
Corporations…and Wall Street…are getting hit during this election as the "bad guy" with corporate inversions being hit, transferring jobs off-shore, corporate salaries, low wages that are not increasing, and so on. They are kind of in a damned if you do, demined if you don't situation.
Why should they invest within such an environment given all the other uncertainties that exist within the world?
So, the US dollar must fend for itself.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.