U.S. Dollar drops most since 1985 before Fed’s decision on rates

October 29, 2008 by · Leave a Comment
Filed under: Currency News 

You should not be surprised at this action in the currency markets.  With the 50-75 basis points cut coming later this afternoon, logically it should be dollar negative with the easing of credit.   We have also had some serious money printing to bailout almost every type of institution under the sun.  

Long-term, we have two distinct paths that will be taken.  We will raise interest rates and protect the dollar and suck the major excess of liquidity from the economy.  Or, we will continue easing and keeping interest rates at this historically low levels, that will lead to massive inflation down the road when the economy picks up.

News:

The dollar fell the most since 1985 against the currencies of six major U.S. trading partners as economists forecast that the Federal Reserve will cut the target lending rate by a half-percentage point today.

The euro strengthened for a second day after Chancellor Angela Merkel said Germany will announce “bold” measures to bolster the economy. The yen appreciated as some traders judged its biggest drop since 1974 yesterday was too much to sustain.

“We had a big move in the euro-dollar today,” said Jens Nordvig, a senior currency strategist in New York at Goldman Sachs Group Inc. “Part of it reflects the anticipation for the Fed to open the door for further easing.”

The dollar declined 1.3 percent to $1.2841 per euro at 2:38 p.m. in New York, from $1.2683 yesterday. The yen rose 1.2 percent to 96.81 per dollar from 98.03 yesterday, when it fell 5.4 percent, its biggest decline in more than three decades. The yen was little changed at 124.30 versus the euro after dropping 6.8 percent yesterday, the most since the 15-nation currency’s 1999 debut.     

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