Low Fed Rates Pressure Greenback

The US dollar fell against the euro and yen after the Federal Reserve sang the same old song of keeping rates ‘exceptionally low’ for an ‘extended period.’ Only one Fed chief dissented, Kansas City Fed President Thomas Hoenig was the lone vote against current policies. Currency expert Kathy Lien of GFT in New York stated, “Going into the Fed meeting, traders were looking for two things: the inclusion of ‘extended period’ and the number of dissenters. Once forex traders saw the words reappear in the statement and saw that Hoenig was the only dissenter, they bailed out of dollars, “The euro gained 0.7% and last traded at $1.3777. The euro started to gain in early trading after EU finance ministers supported plans to aid Greece if warranted. Standard & Poor’s ended its review of a possible Greek downgrade

Fed Less Than Upbeat About US Economy

The Fed was less than upbeat about recent US housing and employment figures which put the dollar under pressure in currency markets. A recent rise in risk sentiment has also pushed the dollar down. Greg Salvaggio of Tempus Consulting said, “I don’t think the market expected them to say housing is still at depressed levels and employers are still reluctant to add to payrolls. We’re not expecting the euro to break out of its $1.35-$1.38 range on the back of this.”

Obama Under Pressure to Adopt Tough Stance on China’s Currency Policies

The Obama administration is facing increased congressional pressure to adopt a tough stance with China regarding its currency policies. On Monday Chinese Premier Wen Jiabao denied China is undervaluing its currency to gain unfair trade advantages.  In a letter to U.S. Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke 130 US legislators said, “The impact of China’s currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors.” Some currency experts called the move counterproductive. Nick Bennenbroek of Wells Fargo stated, “When China gets international pressure to adjust its currency policy, it seems to resist that pressure. It doesn’t like to be pushed around.” Several economists believe China’s currency is undervalued by as much as 40% giving the industrial giant a large trade advantage. Chinese Premier Wen Jiabao dismissed the complaints and also blamed Washington for the deterioration of relations between the two countries citing the recent meeting of Obama and the Dalai Lama. Democratic Representative Michael Michaud stated, “If the administration fails to act on this issue it will hold back our economic recovery and hurt the ability of American small businesses and manufacturers to increase their production, keep their doors open, and create jobs.”