Archive for September 17th, 2007
US Dollar – Interst Rates
I would write this myself but the folks at Trader’s Narative put it perfectly.
It (the US dollar) managed to bounce (feebily) making it the sixth time to bounce off that support line. Alas, it seems there won’t be a seventh as the US dollar has managed to fall through to close around 79.
Take a careful look at this chart of the US dollar index:
Notice anything? It isn’t the recent chart. It is from 1992. Notice how it resembles our more contemporary US dollar index? The rally at the beginning of the year and then the fall into the summer? the fall through long term support?
Catch Up
Something else we have in common with 1992 is that the short term T-Bill rate had started to fall rapidly – ahead of the Fed funds rate. Then, as now, the Fed found itself in the all too familiar game of catch up and repeatedly lowered rates to match the rates set in the freely traded fixed income market.
So what happened to the dollar? Did it crash through the floor and go to zero? Did all hell break loose? Surely with the dollar so weak and the Fed reducing rates like mad, the currency market must have taken the dollar behind the tool shed.
Well, not quite. Here’s what happened next:
An absolutely great perspective on the dollar and interest rates. For anyone who wants to check out the whole blog post here is the link
