Wall Street Journal Moving the US Dollar?! Be Careful of a Fakeout

October 30, 2007

The US dollar is stronger today thanks to an article written by Greg Ip in today’s Wall Street Journal who argues that a rate cut by the Federal Reserve is not a done deal (This is the article). If you read my 5 Scenarios for the Federal Reserve’s FOMC Halloween Rate Decision, this possibility is hardly a surprise. In fact, even though Ip argues that a cut is not guaranteed, he also concludes that it is extremely likely.

His reasons are obvious - it all boils down to inflation.

But he feels that the consequences of disappointing the markets given its one sided bias in favor of a cut would be too severe for the Fed to pass on cutting rates.

So what does that leave us? With a false dollar rally. Today, consumer confidence plunged to a 2 year low while house prices fell by the largest amount on record! The dollar is weak and will remain weak because the market expects the Fed to cut rates and the only thing that would erase that sentiment would be a neutral or hawkish FOMC statement.

Posted in FOMC, FOMC Minutes, Fed Rate Cut, Federal Reserve, Forex News, US Dollar, Wall Street Journal