The Federal Reserve and The US Dollar

The Dynamic Wealth Report
March 21, 2007

The Dollar And The Fed

The world currency markets have been trading sideways as everyone is waiting for the Fed’s Open Market Committee meeting this week.  What does that mean for you . . . Nothing . . . . almost.  Let me explain.  The Fed in all of its wisdom is charged with regulating the banking industry.  They set the interest rates that allow banks to borrow from one another, they determine how much money is available to the market, they help to control inflation. 

The most important of these is the focus on controlling inflation – making sure that the price you pay for things like bread and milk and CDs don’t rocket up to the stratosphere.  A little inflation is good, and like almost anything, too much too quickly, is very bad.  As a matter of fact, in the 1920s uncontrolled inflation in Germany was seen as a contributing factor to World War II. 

So, the Fed is important, what they say and do is important; they play an important role in helping stabilize the economy.  Interestingly, though, traders and investors alike seem to have a laser-like focus on what the Fed says.  They try to read into the words and body language that comes out of these meetings.   In my opinion, unless you are a currency trader, trying to divine the grand thinking of the Fed, over the short term, is a waste of time. 

-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?

Our own small-company specialist, Robert Morris, has found a way to 'sniff out' tiny penny stocks on the verge of a major breakout.  And the timing for this has never been better.

You see, the system takes advantage of an obscure SEC regulation that sends penny stock prices through the roof.

We've seen some stocks gain 852%... 5,450%... even 17,496% in no time flat.

Click here for the details...
-----------------------------------

For those currency traders and investors with a short term focus, nobody expects the Fed to make any changes to the rates, but generally people think that the dollar will continue to weaken on negative comments about the economy. 

Concerns over all of the subprime mortgage industry woes has investors worried that the Fed may see this as a sign of weakness – further driving down the desire of investors for US dollars.  As I outlined in my last piece “Mortgage Foreclosures Overblown”  this type of thinking is based on nothing more than fear and is indeed overblown.  So the end result, the dollar should continue to trade sideways with relation to what the Fed says.

• Gold continues to move higher with concerns over the softening dollar and potential for inflation woes.
  
• Corn futures which have declined slightly over the month of March have started to rebound on continued demand from new ethanol plants
  
• Copper has pushed above $3.00 per pound reaching levels not seen since December – This bodes well for the recent Phelps Dodge/Freeport merger!

 Print Page                                                   Bookmark Us