Tuesday, September 18, 2007

Loose Monetary Policy Crushes the Dollar

The 2:15 rate cut crushed the dollar.

The dollar index just broke through the record low set last Thursday. Oil, gold, euros are hitting multi-year or record highs.

The trend of the dollar index for past two years:

The dollar index tracks the value of the dollar relative to a basket of six major world currencies: Euro, Yen, Pounds, Canadian, Swedish, and Swiss, in order of highest to lowest weights.

Although short term interest rates fell as a result of the rate cut (notice the change from orange to green on the yield curve), long term rates actually increased.

Most mortgages are priced based on the long-term rates. So, after the rate cut, things are looking worse for mortgage rates.

Finally, check out this article from January 4, 2001: Surprise Rate Cut Spurs U.S. Stocks.

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