Why Investors Should Bet Against the American Dollar

Three days after the Reserve Bank of Australia unexpectedly raised interest rates, the monetary policy committee of South Korea’s central bank held a meeting. The Oct. 9 gathering was closely followed because the Australian move raised expectations that other central banks would also tighten. Korea held the line. Citing “uncertainty as to the economic growth path,” the Bank of Korea kept interest rates at an ultra-low 2%, the result of six rate cuts over the past year.

Still, it is only a matter of time before Korea follows Australia’s lead. So will the People’s Bank of China, the Reserve Bank of India, the Reserve Bank of New Zealand, the Monetary Authority of Singapore — and perhaps several months down the road, the European Central Bank. As economies recover and jobless rates fall, most policymakers will raise interest rates to head off the inflation that could result from the massive fiscal stimulus spending launched by governments around the world to combat the global recession.

Most will raise rates — but one very conspicuous central bank is unlikely to follow suit. With the U.S. jobless rate at 9.8% and still rising, the U.S. Federal Reserve cannot risk a rate increase anytime soon, despite the danger of inflation. Read full story here.

Interest rate increases around the world will only increase pressure on the downward move in the USD.

This entry was posted on 13. October 2009 at 06:17 and is filed under Currencies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.