Question: If the Fed cuts rates on September 18, will the dollar just free fall? And where is all this liquidity going and what are the ramifications of a soaring money supply and added liquidity by the world's Central Banks?
The trend of the dollar does not depend only from the level of interest rates. It reflects also productivity trends, financial and government infrastructures and regulations, economic dynamism of the country, and protectionist tendencies (see for instance what happened here when China tried to buy an oil company or Arab interests tried control of west coast ports).
Interest rates are a very small part of the equation. When Brazil had 60% interest rates in the 1970s it also had the weakest currency.
As far as the increased liquidity is concerned, as I mentioned in several blogs below, it is good news for the financial markets. But not for all of them.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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