Economic News

USD - Interest Rate Cut Creates Massive One-Day Loss for USD

In a move anticipated by most market analysts, the Federal Reserve cut target lending rates yesterday to a level not seen in almost 50 years! This was done in an attempt to prevent a widening financial crisis from tipping the U.S. economy into a prolonged recession. It was not the first time the Fed cut rates to stave off further economic disaster during these most recent times of financial hardship.

Less than a month ago the Fed joined the European Central Bank (ECB), as well as other counterparts from the U.K., Canada, Sweden and Switzerland, in a coordinated reduction of interest rates, cutting its target rate by a half percentage point to 1.50%. Now, as a result of yesterday's further rate cut, the Dollar posted its biggest one-day fall against almost all of its major currency counterparts.

The Dollar was already beginning to trade above $1.3200 per EUR in today's early trading sessions, after dropping 2.2 % yesterday, and has also climbed above 1.6500 against the GBP. The Fed may also be expected to lower benchmark interest rates even further in the coming months given the downbeat economic outlook provided by the Fed's policy statement yesterday.
The market has been trading on a recovery theme lately; there is still a lot of uncertainty, and risk aversion is very much in place. If risk appetite continues improving, the Dollar may get even weaker. Despite showing signs of recession in the U.S. economy, the Fed's maneuver put the focus on the interest rate differential, and that might force the Dollar to go even lower no matter how the Advanced GDP figures appear when they are released later today.