PetersonBrown Group - Dollar drops after rates reversal

Dollar drops after rates reversal

Kane Davis Cooper  ̶  The dollar dropped to its lowest level since the start of the year as whispers grow louder from key central banks that the end of the age of easy money may well be coming to a close around the world.

Backing for the dollar slipped as it began to dawn on investors that higher interest rates may be coming to economies around the globe.

Bank of England head Mark Carney surprisingly announced that rates may be about to rise in the UK and in Canada, leading officials stated that rates there might be raised as soon as next month.

The ECB has also recently commented that stimulus there may need dampening as the economic situation continues to improve. Despite further comments aimed at calming speculation, the Euro climbed to a year high against the dollar. It reached $1.1409, climbing 3% over the same number of days. Against the yen, the Euro hit a 16-month high as misgivings increase as to whether the Bank of Japan will be able to begin slowing stimulus there at any time in the near future.

The Canadian dollar experienced its largest daily increase in three months, while the pound recovered back to $1.2964. Increasing uncertainty saw the dollar drop against a wide range of currencies to its lowest since last October.

Market commentators described the response as “extraordinary” with trading activity double the usual daily amount.

The turmoil sent German bonds hit peaks for the year and yields on U.S. 10-year Treasuries are 11 basis points this week.

As a result of the rise in bank shares and the outlook for increased interest rates, the S&P 500 notched up its largest one-day gain in around eight weeks, with the Dow rising 0.69% and the Nasdaq 1.43%.

Financials rose further in after-hours trading as the Fed agreed on proposals from some of the biggest U.S. banks to use additional capital for share buybacks and dividends.