US Dollar Down on Fed News

Added: January 26, 2011

The US Dollar fell after Fed decision announcement. UK pound up on Bank minutes.

US Dollar

The US dollar moved lower against the euro during the Wednesday trading session. It moved lower specifically after information from the Federal Reserve was issued in which it was unanimously agreed to by members that the already low interest rates in place for lending in the country will remain low. The bond buying program will also remain intact. The Federal Reserve stated that the amount of economic growth that the United States is still low, "disappointingly slow." Investors had hoped that the Fed would move this key interest rate higher, which would be encouraging.

The US Dollar Index moved the US dollar from 77.973 at the end of the trading session in North America to 77.776 at the end of the day on Wednesday. During the day, it moved from 77.934 prior to the meetings announcement down.

Investors had hoped that the Federal Reserve would increase this key lending rate. That would have signaled more positive movement in the economy and the overall global economy. However, the lack of movement means less potential for investors to earn by investing in the US dollar. This continued to lead to a pullback from the US dollar by currency investors during the session, while investors turned to the euro for more promise of profits.

The Euro

The euro improved on the day as well. The euro moved from US $1.3682 at the end of the trading session on Tuesday to US $1.3677 by the end of the trading session on Wednesday in North American trading.

Yen

The US dollar gave up the gains earlier in the trading session against the Japanese yen. The US dollar moved from Y 82.23 at the end of the trading session on Tuesday to Y 82.26 by the end of the Wednesday trading session.

UK Pound

The UK pound moved higher during the session. This currency had one of the largest moves during the trading session. It moved to US $1.5912, which was an improvement of 0.8 percent for the day. This came after the Bank of England released the minutes from the last meeting it held. This meeting minutes report indicated a three way split by monetary policy committee members on the movements within the group. Some voted for an unchanged policy while others disagreed. Others wanted to see an increase in the amount of asset purchases within the program.

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Speculation is the Trading Strategy Right Now

Posted by Hugh Davis at Feb 01, 2011 07:17 PM

You are right about the fundamentals not guiding the currency market right now and especially the greenback. It’s all about speculation right now. And that’s how it was working during the recession so we don’t seem to have made much progress towards returning to a normal market. But the dollar should strengthen and the euro weaken over the next week as safe haven investing takes hold while waiting to see what happens in Egypt. And don’t forget there is still plenty of financial instability to share in Ireland, Spain, Portugal and Greece. It’s just that Egypt is the hot topic right now. Makes you wonder if we will ever go back to “normal”.

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Traditional Fundamentals Not Playing Heavy Role

Posted by Julian Zang at Feb 01, 2011 07:17 PM

The traditional fundamentals have not been influencing the US dollar the way they did pre-recession. If they were the dollar would be much more bullish at this point with economic forecasts of an economy recovering faster than expected even though slower than desired. But the Treasury is getting ready to dump $600 billion more cash into the economy through purchases of Treasury securities as if that will dislodge the stubborn unemployment rate. The numbers show that US businesses are sitting on over $1 trillion of unused cash now. I don’t see how pumping more cash into the economy is going to encourage these businesses to invest.