When the US Dollar was at its eight month low, many people were wondering if it would continue to hold up. But after a few weeks of high volatility, the currency has started to regain some of its strength and is now poised to continue its upward trend. If you are looking to make a purchase, you will want to keep track of these recent developments.
US Dollar Grasps for Support at Eight-Month Lows
The US dollar has shown some early signs of life since the eurozone crisis erupted. However, the central bank of Japan and China have yet to join the charge. This has resulted in an unorthodox monetary policy for much of the developed world. Moreover, the euro area has become a net importer of energy, with the cost of gas hitting record highs. These and other factors are likely to weigh on the European economy for some time to come. As a result, the US dollar has found its way to eight-month lows against the yen. It is not unusual for the yen to depreciate significantly in an environment like this. Nonetheless, it is difficult to deny that the dollar has regained some of its former luster. If history is any guide, the US will be a major player in the global economy for decades to come.
In fact, the European Central Bank has recently signaled a modest change in its policy path. As a result, the Euro has become a relative bargain compared to its neighbors.
Fed Cuts Interest Rates
The US Dollar continues to struggle against the forces of global growth, trade and inflation. It has fallen to a nine-month low to the Euro, but traders are analyzing the potential impacts of a recession in the United States.
In September, the Fed used overnight repurchase agreements (ORAs) to help the economy. This policy is meant to increase the money supply. But it also has implications for how businesses and consumers pay interest rates.
Since the financial crisis, the Fed has made a series of interest rate cuts, aiming to spur economic growth. These cuts are mostly targeted at short-term loans and credit card debt. However, there are other tools the Fed can use to increase the amount of credit available in the market.
In addition to cutting the federal funds rate, the Fed has also been involved in quantitative easing, a policy in which it purchases securities in the open market. When consumers borrow money, they tend to buy more, which increases their economic activity. Businesses can also benefit from more credit, which means they can more easily finance operations.
Getting Ready for Rate Cuts
There is a lot of speculation about how the Federal Reserve will cut interest rates. Most investors expect the central bank to do so this week. The market is anticipating that the Fed will cut the federal funds rate to a range of 1% to 1.25%.
However, the Fed won’t give the economy any more juice without showing victory over inflation. Rather, the action is meant to keep the financial markets from collapsing. It’s not clear how much longer the economy will be able to sustain this growth.
Some Fed officials believe the rate cuts won’t do much to slow the economy. One official argues that the Fed will reduce its bond holdings, which may help counter any future rate cuts. But he also believes the likelihood of a recession in the next 24 months will increase.
Another Fed official believes the recent decline in inflation is a sign of resilience. He thinks the Fed’s policies will keep inflation in check.
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