Dollar Falls as Longer Term Low Interest Rates Spark Investment

Posted March 17, 2010

On Wednesday, the US dollar dropped in value against more risky currencies. Economic data, low interest rates and a need for riskier investments fueled the movement.


The US dollar fell against other higher yielding currencies in trading on Wednesday. The reason for the decline was due in part to investors turning to growth sensitive assets as belief that the Japan and US low interest rates will continue into the longer term.

Against the US dollar, the Australian dollar moved to a nearly 60 day high. However, the Canadian dollar grew closer to the value of the dollar for the second day of currency trading in a row. The Canadian dollar fell to 1.0070 against the US dollar, which marks a 20 month low for it. New Zealand, on the other hand, saw a jump as high as one percent before falling back some by the end of the day Wednesday.

Interest Rates Fuel Speculation and Buying

One of the main factors influencing currency movement on Wednesday was the record low interest rates still holding on in the US. The Federal Reserve announced Tuesday that it had no intention of raising interest rates at least for some time. Further, Japan provided information that it is loosening its monetary policy even more so in an effort to spur economic growth. This information, to the investor, was helpful in that it points to more chance of a global economic recovery.

The Bank of Japan left interest rates low in a meeting this week. It promised to add more monetary stimulus to its economy as a way of helping to deflect some of the deflation occurring there.

The two elements seemed to fuel the markets to take on more risky currencies. This led to equity market gains across the board. With the potential for economic growth, it is likely this will continue to be seen.

The Numbers

By late Wednesday, the euro stood at $1.3741, which is down from $1.3777 on late Tuesday. The US dollar moved from 90.24 yen to 90.27 yen. The euro dropped from 124.32 yen to 124.04 yen Tuesday. The US dollar stood at 1.0542 Swiss francs, which was a change from the 1.0539 francs it stood at on Tuesday. The UK pound moved from $1.5257 to $1.5326 as well.

Also notable is the euro that dipped to as low as 1.4477 Swiss francs, which is the lowest level that it has reached since October 2008.

Other News

The UK pound gained the most ground in terms of major currencies besides those that are commodity linked. This is a result of the UK government providing information that the number of people who were claiming unemployment nationwide had dropped. It fell by 32,200 in February. The country has not seen such a drop in unemployment since November of 1997. Also, a comment made in the minutes of a meeting occurring in March during the Bank of England’s Monetary Policy Committee meeting fueled additional consideration in that it expressed some concern about the weaker pound as a stimulus to growth.

For now, it seems as if the lower interest rates and the potential for a stronger economic recovery outlook seemed to move the currency markets into more risky territory for the day.