The Fed's Loose Monetary Policy Crushes the Dollar

The 2:15 rate cut crushed the dollar.

click to enlarge

The dollar index broke through the record low set last Thursday as a result while Oil, gold and euros hit multi-year or record highs.

The trend of the dollar index for past two years:

The dollar index tracks the value of the dollar relative to a basket of six major world currencies: Euro, Yen, Pounds, Canadian, Swedish, and Swiss, in order of highest to lowest weights.

Although short-term interest rates fell as a result of the rate cut (notice the change from orange to green on the yield curve), long-term rates actually increased.

Most mortgages are priced based on the long-term rates. So, after the rate cut, things are looking worse for mortgage rates.

Finally, check out this article from January 4, 2001: Surprise Rate Cut Spurs U.S. Stocks.

Comments

[Uncle Bill:]

How is this Seeking Alpha? You don't take a position, you just report old news. Dollar is at an all-time low, stock market is just off its all-time high. What should we do? Is the dollar going to rally while the stock market sinks? Has that ever happened? The market hasn't cared about a weak dollar to date -- is it suddenly going to start paying attention if the dollar drops lower? Answering any of these questions in an intelligent fashion might add to my Alpha. Otherwise, quit wasting my time.

2007 Sep 20 08:41 AM