Federal Reserve Cools Dollar Earlier Gains

Posted March 16, 2010

US dollar falls on Tuesday trading as the Fed holds back benchmark rate increases. The euro responds as Standards & Poor calm some fears over Greek debt.

 

The US dollar fell back on Tuesday after rising on Monday. The main cause of this drop was the Federal Reserve’s cautious assessment of the recovery occurring in the United States. In turn, it did not raise interest rates and seemed to push the thought of raising rates off for the time being. As a result, other currency competitors fared well against the dollar.


Also important in Tuesday’s currency markets was news from Standards & Poor. The credit rating agency helped to ease some of the worry about Greek debt, which has been holding back currencies such as the euro. The euro gained after the Federal Open Market Committee also made statements that it was going to keep interest rates low for the extended period of time.


In the Numbers


On Tuesday, the UK pound gained on the day, by some 1.33 percent. The statement from the Federal Open Market Committee caused the yen to reverse its direction and it moved into positive territory. The US dollar dropped by 0.54 percent since late Monday. It was at $1.0139 by late afternoon Tuesday. The Canadian dollar hit 20 month highs after the announcement from the Federal Reserve. The Canadian dollar and US dollar are getting closer to equality in value.


By late Tuesday, the euro was at $1.3776 which is up from the $1.3670 it was Monday evening. The US dollar moved from Y 90.48 to Y 90.22. The euro was at Y 124.31 which is up from Y 123.69 late Monday. The UK pound moved from 41.5049 on late Monday to $1.5256 on Tuesday. Further, the US dollar was down from CHF 1.0625 to CHF 1.0543. The ICE Dollar Index was at 79.661 from a previous position of 80.255 on Monday.


Federal Reserve


With the Federal Reserve not moving the benchmark lending rate and likely leaving it at the same, record low levels for the foreseeable future, it is likely that the US dollar will continue to weaken. With the concerns over the Greek debt issues seeming to subside, the dollar is likely to lose even more so against the euro in the coming days and weeks, experts believe.


Experts believe that the Fed has no reason to tighten up its monetary policy simple because inflation information seems to indicate stability and because there are minimal signs of pricing pressure. Further, there is a reluctance to add to payrolls, but nothing signals that the Fed needs to raise this rate for the time being.


Standards & Poor


Also important in Tuesday’s currency trading is the Standards & Poor statement that it is taking Greece off of its ratings watch. This helps to provide more calm to the sovereign debt issues. Just last month the organization stated it was considering downgrading the country’s credit rating by as much as two notches.

However, the rating agency did slap the country with a negative outlook, which meant that it could downgrade the country’s credit rating in the future.  If the government fails to address the concerns adequately, it is likely that the country will receive a downgrading of its credit rating.
 

 

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