The Fed decided not to hike the Fed funds rate in September, but this did not hurt the dollar unduly. Even though the Fed decided against lifting the Fed funds rate in September, the US dollar did not really struggle much. The reason for this lies with the ECB which had overtly declared on 3 September its readiness to press ahead with further quantitative easing, a statement that dented the euro’s appeal. Moreover, too steep a rise in the yen’s value would have a particularly unwelcome disinflationary impact at a time when the BoJ’s inflation measures have slipped back into the negative zone. Furthermore, the recent rate cut in Norway, coupled with Norges Bank’s downward revision to the future rate path, confirmed that central banks in advanced economies reliant on commodities are most likely to remain highly accommodating in order to bolster their countries’ domestic growth prospects. Lastly, even though the Fed’s temporary deferral of that initial hike is good for emerging currencies, most of these are being dogged by enough other structural problems to tarnish their appeal, as typified by Standard & Poor’s downgrading of Brazil’s rating to a ‘speculative’ non-investment grade. While all this was going on, the Swiss franc’s exchange rate managed to reach the threshold of 1.10 euros through the combined effects of a weak franc and strong euro.
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The Fed decided not to hike the Fed funds rate in September, but this did not hurt the dollar unduly.
Even though the Fed decided against lifting the Fed funds rate in September, the US dollar did not really struggle much. The reason for this lies with the ECB which had overtly declared on 3 September its readiness to press ahead with further quantitative easing, a statement that dented the euro’s appeal. Moreover, too steep a rise in the yen’s value would have a particularly unwelcome disinflationary impact at a time when the BoJ’s inflation measures have slipped back into the negative zone.
Furthermore, the recent rate cut in Norway, coupled with Norges Bank’s downward revision to the future rate path, confirmed that central banks in advanced economies reliant on commodities are most likely to remain highly accommodating in order to bolster their countries’ domestic growth prospects.
Lastly, even though the Fed’s temporary deferral of that initial hike is good for emerging currencies, most of these are being dogged by enough other structural problems to tarnish their appeal, as typified by Standard & Poor’s downgrading of Brazil’s rating to a ‘speculative’ non-investment grade.
While all this was going on, the Swiss franc’s exchange rate managed to reach the threshold of 1.10 euros through the combined effects of a weak franc and strong euro. As explained above, the euro’s firmness may well come under threat from any fresh ECB stimulus.
With Swiss interest rates deep in negative territory and sluggish domestic growth, the result should see the franc losing further ground although its depreciation against the euro is likely to be a very sedate process.