Dollar Falls Further on Fed Rate Cut Speculation - No End in Sight to Greenback Losses?
The US dollar fell near fresh all-time lows against the Euro, as speculation of aggressive Federal Reserve interest rate cuts sunk the Greenback to further depths. Indeed, the trade-weighted dollar index plummeted to its lowest levels in nearly three months, while the euro hit heights of $1.4917 before later declines. Speculation that the US Fed would cut its short-term Fed Funds Rate ahead of its scheduled January 31 meeting forced the lion’s share of dollar losses. Markets later pulled back forecasts that the Fed would cut ahead of its upcoming meeting, but the stabilization in financial market conditions was not enough to force a worthwhile dollar rebound. In fact, a triple-digit Dow Jones Industrial Average rally effectively fueled the dollar decline; rallying risky asset classes have recently forced the opposite move in the downtrodden US dollar.
Do you think that the Federal Reserve will cut by 25, 50, or 0 basis points on January 31? Have your say on the DailyFX Forex forum.
Fed Funds Futures traders now price in a full probability of a 50 basis point interest cut through the FOMC meeting on January 30th—a clear negative for the US dollar. All else remaining equal, a drop in US yields could only sink the greenback further against major forex counterparts. This is especially the case against the euro, with traders now forecasting that the European Central Bank will either raise rates or leave them unchanged through 2008. The Reserve Bank of Australia is likewise predicted to continue raising interest rates through the same period—providing strong support for the Australian dollar. Time will tell if yield differentials will continue to be one of the main drivers behind currency market volatility, but outlook nonetheless remains very dim for the hopeless US dollar.
Written by David Rodríguez, Currency Analyst for DailyFX.com, email@example.com
To discuss the US dollar and other major currencies with DailyFX analysts, be sure to visit the DailyFX.com Currency Trading Forum.
- US Dollar Plummets on Fed Rate Cut - Dollar LIkely to Fall Further
- US Dollar Loses Further Support on Fed Talk - Hopelessly Resigned to Further Losses Against Euro?
- Australian Dollar Forecast to Fall, Dow Jones Losses Could Force Selloff
- Forex Morning Outlook (Podcast): Dollar, Dow Could Face More Losses Today As European Shares Continue To Fall
- US Dollar Bulls Stay In The Game As Fed Rate Hike Speculation Goes Little Changed