• 721 days Will The ECB Continue To Hike Rates?
  • 721 days Forbes: Aramco Remains Largest Company In The Middle East
  • 723 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,122 days Could Crypto Overtake Traditional Investment?
  • 1,127 days Americans Still Quitting Jobs At Record Pace
  • 1,129 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,132 days Is The Dollar Too Strong?
  • 1,133 days Big Tech Disappoints Investors on Earnings Calls
  • 1,133 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,135 days China Is Quietly Trying To Distance Itself From Russia
  • 1,135 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,139 days Crypto Investors Won Big In 2021
  • 1,140 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,140 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,143 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,143 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,146 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,147 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,147 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,149 days Are NFTs About To Take Over Gaming?
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

Fed Smacks Dollar; Europe and Japan Lose Hope

FOMC's fear of a strong dollar drives greenback lower

NEW YORK (MarketWatch) -- The U.S. dollar turned lower against rivals Wednesday afternoon after the FOMC released minutes from its September meeting, revealing that members raised concerns that a one-two punch of a strong dollar and stagnant growth abroad could impede U.S. growth.

The closely followed central bank minutes also showed that several Fed officials wanted to remove language indicating that short-term interest rates would likely remain low "for a considerable time," but held off in part because of concern that the market would misinterpret it as a policy shift.

Worries about tepid growth in Europe and Japan could relieve pressure on the Fed to raise rates sooner rather than later but already have been weighing on the greenback.


Really bad news for Europe and Japan

Check out the stock market's volatility since the dollar has been rising. In normal times 200 point moves on the Dow are pretty notable. But they've happened in four of the past six sessions:

Stock volatility Oct 2014

One explanation for this surge in volatility is that the dollar is spiking at a time when stocks are priced for perfection, producing Fear (that an appreciating currency will price US exports out of world markets and make domestic debts harder to manage) to contend with the Greed generated by a long bull market.

The Fed understands the risk posed by a surging dollar and is using it as an excuse to do what it wants to do in any event: continue to hold interest rates at artificially low levels and keep the helicopter money flowing.

US equity markets loved this reprieve, of course. But now the question becomes: If too-strong currencies helped to push Europe and Japan back into recession, and weaker currencies (versus the dollar) were those economies' main hope for avoiding an ugly deflationary crash, then what does the Fed's desire to keep a lid on the dollar mean? The answer isn't pretty. If the dollar goes down from here that's the same thing as saying the yen and euro go up. And if those currencies rise, Japan and Europe are toast.

So this story has just begun, and the next chapter is likely to involve some seriously desperate/experimental actions from the European Central Bank and Bank of Japan.

 

Back to homepage

Leave a comment

Leave a comment