Archive for the tag 'interest rates'

Dollar Falls — New Low Vs. Euro

Kurt Brouwer October 29th, 2007

For our latest thinking on the dollar see:

How Far Has the Dollar Fallen? And Why? — What’s Next?

This article [emphasis added] from the Wall Street Journal has it exactly correct as to why the dollar is falling against the Euro:

Rate-Cut Expectations Weigh on the Dollar (The Wall Street Journal, October 29, 2020, Dan Molinski)

The euro is stronger against the dollar early Monday in New York after hitting a fresh all-time high during the overnight session on expectations that the Federal Reserve will lower interest rates this week.

And sterling is trading at a three-month high against the greenback after consumer lending in the U.K. rebounded to the highest level in almost a year in September, suggesting its economy is weathering recent global credit problems.

Analysts said the dollar may continue to trade near its all-time low versus the euro as markets gear up for the interest rate decision Wednesday by the Federal Open Market Committee. The central bankers are expected to reduce rates to 4.50% from the current 4.75%, while some say it’s possible the rate could be cut to 4.25%.

Lower rates by the Fed tend to hurt the greenback by lowering its appeal to investors looking for higher returns.

“The dollar is likely to remain under pressure ahead of the FOMC decision,” said Sophia Hardy, currency strategist at UBS in New York.

The answer is interest rates. When our rates were high back in 2001, the dollar was at an all-time high versus the Euro. As our rates have fallen, the dollar has also weakened versus the Euro. For a much more in-depth treatment of this issue, see our post How Far Has The Dollar Fallen? And Why?