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Dollar Defies Fed’s Rate CutIt is one of the givens of economics that currencies fall when interest rates are cut — so analysts are wondering what is happening to the dollar. Despite the Fed cutting US rates by 1.25 percentage points over the past two weeks, the dollar has weakened only slightly. Typically, a dramatic fall in interest rates would make returns from Treasury bonds less attractive. Jonathan Loynes, of Capital Economics, said: “There has been a clear breakdown in the relationship between currencies and interest-rate differentials in the last month.” Experts say that there are several reasons for the dollar staying relatively strong. Mr Loynes said: “The relationship between interest rates and currencies is not mechanical. This is a rare case of the currency markets being forward-looking. In the near term, bonds will be worth less, but the quick reaction of the Fed could point to a more positive outlook in the medium term for the US economy.” &&&§ionName=Economics,mywindow,menubar=0,resizable=0,width=615,height=655); Related Links Market collapse fears triggered Fed rate cut Inflationary pressures curb rate cutBilal Hafeez, global head of foreign currency exchange for Deutsche Bank, said that the currency had also been supported by hedge funds and other investors unwinding some “sell” positions on the dollar: “Investors were selling dollars because of the weakness in the US economy, but events so far this year have sent a signal to investors to reduce their positions.” The Bank of England Monetary Policy Committee is expected to cut British interest rates by a quarter-point on Thursday, but the Council of Mortgage Lenders said that a cut would not necessarily be passed on to borrowers. Tag CloudExternal InformationAdditional InformationChief of EGL Raises Buyout Bid Yet Again...Interim Pact Averts Comair Pilots? Strike... Sprint Nextel Profit Is Down, but Subscriber Growth Is Up... Advertising: Plum, the Color, Is Having Its Star Turn... Where Am I?News Main Page - Business - Dollar Defies Fed’s Rate Cut |
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