U.S. dollar is a weakling no more
Suddenly, the Fed is the buck’s BFF.
The dollar has been roaring against many other major and minor currencies over the last month, a trend that accelerated this week as global investors were spooked yet again by recession fears.
For now, the dollar is back in its traditional role as a haven in times of market and economic turmoil. And the Fed helped by opting not to launch a new money-printing campaign when policymakers met on Wednesday.
Instead, the Fed said it would try to pull longer-term interest rates lower by shifting its massive Treasury bond portfolio from shorter-term securities to longer-term ones.
At the same time, the Fed warned of “significant downside risks to the economic outlook.” That was enough to trigger another rush of global money into the greenback.
The DXY index (charted at left), which measures the dollar’s value against six other major currencies, soared 1.4% on Thursday to its highest level since February. The index has risen 6.3% since Aug. 29.
The euro has dropped 7.2% vs. the dollar since Aug. 29, to $1.346 on Thursday, the lowest since January.
The buck’s gains against some currencies have been far more dramatic. Compared with three weeks ago, one dollar now buys 11% more South Korean won, 13% more Mexican pesos and 20% more Brazilian reals. It buys 26% more Swiss francs than six weeks ago.
With the Fed’s meeting out of the way, “The market is no longer worrried that [policymakers] will undercut the nascent dollar recovery anytime soon,” Alan Ruskin, currency strategist at Deutsche Bank Securities, said in a report Thursday.
Meanwhile, the outlook for the euro gets bleaker, he said, amid expectations that the European Central Bank will have to continue pumping new money into the continent’s deeply troubled financial system.
Who loves a stronger dollar? Any American business or leisure traveler heading overseas, of course.
But the dollar’s resurgence is bad news for U.S. exporters because it has the potential to make their products more expensive for foreign buyers. That’s another jab to the stock market’s gut this week as shares of multinationals such as Caterpillar, Boeing and Colgate-Palmolive get clobbered.
-- Tom Petruno