Will the US Dollar Become the Lowest Yielding Currency in the World?

Date December 5, 2008

Fed fund futures are already pricing in a greater chance that the central bank will cut rates by 75bp on December 16th than 50bp. That would bring US interests down to 0.25% and turn the US dollar into the lowest yielding currency in the developed world.

Source: Bloomberg

Source: Bloomberg

Since Japan’s interest rate is currently 0.3%, if the US takes rates below Japan’s levels we could see a downward adjustment in USD/JPY. At this point, taking interest rates to zero may only have limited impact on the financial markets because short term yields are already trading near those levels. Beyond that comes quantitative easing and in many ways, the Federal Reserve’s latest announcements about buying Fannie and Freddie debt already constitutes quantitative easing.

However there is hope as the continual decline in oil prices will help to cushion the blow of a softening economy for US consumers while the prospect of 4.5 percent mortgage rates could help to reinvigorate the housing market. In addition to the retail sales report, we also expect pending home sales, the trade balance, producer prices and the University of Michigan consumer confidence survey from the US this week.

CAD: Bank of Canada Expected to Cut Rates to 1.75%
EUR: Will it Remain Immune to Weak Data?
GBP: May Continue to Underperform the Euro
JPY: Recovery in Dow Takes Yen Crosses Off Multi Year Lows
AUD: Construction PMI Sinks to 32.0
NZD: Retail Sales on Tap Next Week

More on this topic (What's this?)
The US Dollar: As Always There Is No Free Lunch!
US Dollar Super Overbought
Read more on Currency, U.S. Dollar (USD) at Wikinvest

5 Responses to “Will the US Dollar Become the Lowest Yielding Currency in the World?”

  1. muckdog said:

    Do you think the long-term bull market in the bond market is nearing its end?

  2. Fxman said:

    Hi Kathy,
    May i know where can i find the fed fund futures or euribor futures rates.
    Thanks

  3. Craig said:

    Don’t expect low mortgage rates to stimulate your housing market. It’s not working over here in the UK. We can now get mortgages below 4% – but we need a 40% deposit to get them. The smaller the deposit we have the bigger the interest rate becomes. And it’s no wonder it’s not working – the banks are still de-leveraging so lending criteria gets tighter by the day – and potential buyers may now be either facing the prospect of unemployment or worried about facing it. They’re not in a mood to buy a house.

  4. Danielle said:

    Economic downfall will rule for the whole next year at least… no wonder dollar falls.

  5. Kathy Lien said:

    Thanks for posting on my forex blog.

    Muckdog, I think we probably have a bit more to go in the bond market before it tops out. Right now, the safety of Treasuries is still a big story.

    FXman – I post fed fund future rates on gftforex.com every day. You may also be able to find the data on Bloomberg

    http://www.gftforex.com/resources/analysis/analyst.asp?commentID=346

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