Fed increases the interest, dollar is still falling. What do you think?
Dollar has been supported by a cycle of interest rate hikes and a very well stabilized “Carry Trade” environment. This view changed recently.
The FED has been on hold for months, and the next move is down rather than up. A rate cut is the very expected next move for Fed. But when, there is no timeframe, as early in Q1 of 2007. As such market is pricing in this upcoming rate cut or possibly more than one.
Dollar is also falling as Yen advances, and a less healthy carry trade environment for high yielding currencies. Thus, US dollar is not sustaining any gains and likely to stay on the back foot.
So, in little words, it’s a combination of a less healthy carry trade, data weakness from US, very expected rate cuts from FED in near term. thats why dollar is falling, and likely to continue the fall.
Also, one last to note. Banks reserve diversification into european currencies away from USD is sure something to consider.