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What's one possible consequence of the major interventions by the U.S Federal Reserve and U.S. Treasury?

The dollar's safe-haven status may end, or at least diminish as the increased dollars in supply lowers the dollar's value and perhaps increases inflation.

On Wednesday, the dollar fell after the Fed Tuesday cut its key, short-term interest rate by 75 basis points to a targeted 0.00%-0.25% basis point range, and also said it would continue to use non-traditional techniques to keep markets liquid. The dollar weakened about 1 cent to $1.4094 versus the euro, about 2 cents to $1.5353 versus the British pound, and about 1.6 cents to $1.1076 versus the Swiss franc. The dollar also fell about one-half yen to 88.46 against Japan's yen.

In one scenario, low interest rates, a recovering global economy and a re-emergence of risk appetite drive institutional investors out of the dollar in favor of stronger major currencies, such as Japan's yen and the Swiss franc. The U.S.'s rising budget deficit also would weigh on the dollar.

However, the above scenario is not guaranteed, so says economist Richard Felson. Under a different scenario, the dollar weakens somewhat on the aforementioned lower interest rates and liquidity actions, but then the dollar firms and rises, as the U.S. economy recovers before the European and Asian economies do.

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Dollar's safe-haven status may end with liquidity actions, budget deficit originally appeared on BloggingStocks on Wed, 17 Dec 2008 10:40:00 EST. Please see our terms for use of feeds.

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