Category — Americas

The Federal Open Market Committee (US Fed) left the US overnight lending rate unchanged yesterday at 5.25% for the 3rd consecutive time. The currency market had a knee jerk reaction as traders initially found the news to be pro Dollar but very quickly began to sell off as they continued to read through the Fed’s comments. Although the decision to leave rates unchanged was already fully priced into the market, everyone was eyeing in on the FOMC statement to see if they would continue to state their concern on core price inflation. The Fed added the line “Going forward the economy seems likely to expand at a moderate pace.” They also took out their concern of high commodity prices putting a strain the economy as oil prices have tumbled down over 25% from over $78 a barrel to around $60 today.

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Last week Federal Reserve vice-chairman Donald Kohn expressed question about rates falling anytime soon. Then Friday payrolls numbers came in better than what traders expeted. This coupled with falling oil prices, after ranging for months, the dollar advances strongly bringing it to levels we have not seen since late July against the euro.

But how much of the dollar advance is based on the fear of geopolitical news? Some think the events in North Korea scare investors as much as politicians, as both the levels of the dollar and the US equities markets show the desire to hold US based assets.

The above charts show the dollar against the euro over the past three weeks. The prices shown are the how many dollars in one euro.

As oil prices have been falling in the last week or two, so have the currencies of the heavy oil exporting countries including the Canadian Dollar and the Norwegian Krone.

It is the third day in a row of the real weakening against the dollar. After gaining over 14% in the last year real fell 0.4% to 2.1604 from 2.1516 per dollar. Fundamentals are breaking down in Brazil as the unemployment rate is it it’s highest in over a year. The budget surplus also came in less than expected.