Dollar Continues to Weaken as Fed Cuts Interest Rates by 0.5%
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The Federal Reserve just announced it is lowering interest rates for the first time since the COVID-19 pandemic. The rate cut of 0.5% isn’t quite the three-quarter point slash Senator Elizabeth Warren pushed for in a recent letter to Fed Chair Jerome Powell, but it is still huge. In anticipation of this announcement, the US dollar weakened. Why is this, and what will it mean for the future?
The US Dollar Index, which measures the dollar against a combination of worldwide currencies, fell by 0.16% today. This is consistent with the year-to-date trend of falling by 0.62%. Looking at individual currencies, the US dollar fell by 0.46% against the Japanese Yen, though it remains 0.51% stronger for the entire year. The dollar also fell to the Swiss franc by 0.35%, and the Euro strengthened against the dollar by 0.16%. The sterling also grew against the dollar by 0.56%. The US dollar even weakened against the Canadian dollar by 0.07%.
Why does this happen when lower interest rates are considered good for the economy after years of decade-high rates? Well, a drop as high as 0.5% can mean that the economy is in a precarious position. Recession red flags have been waving for weeks now, especially when unemployment rose unexpectedly in July, and most recently, when the US Treasury Yield began normalizing for the first time in two years, a signal that a recession could be in the cards for next year. The Fed tends to implement extreme rate slashes when the economy is under pressure and in need of a crutch.
So does this mean your business is in danger? Not quite. In fact, lower interest rates can help you immensely if you have been in need of a loan to support your business, or have thought of refinancing a mortgage or vehicle. Still, the dollar becoming weaker may not exactly be beneficial for your business, and it would be wise to prepare for the weakening trend to continue for the rest of the year. Do so by taking charge of your business’s finances with a trusted accountant and tax professional by your side. Don’t have someone you can trust? Reach out to XQ CPA’s experienced advisors for the right guidance today.
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