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Part I: Why the US rate cut may kill the dollar
Central bankers, economists and analysts are an anxious lot. As stock markets across continents are inexorably linked to the US Fed, they realise that the move to cut interest rates has far reaching implications. They know for sure that to save the United States' financial sector as a whole from complete collapse, the Fed has taken a huge gamble, especially on the dollar.
This could, in turn, have a debilitating impact on the US financial sector, American economy and by extension on the global economy, as talked about in the previous part of this column.
But as global markets debate the rate cut move, the US Fed -- the author of the move itself -- goes virtually un-scrutinised and unquestioned, in and outside the US. Crucially, the approach of the Fed to savings, investments, stock markets and the symbiotic link provided to all these is central to understanding its motives and what drives its decisions.
The first indicator that the US dollar is going to have a torrid future is borne out of the fact that ever since the Fed announced the cut in interest rates the value of gold has shot through the roof and hit the all time high of $925 per troy ounce (even as I write this).
Naturally, other commodities, viz. silver, crude oil, uranium, palladium, copper, tin, et cetera, will follow the pattern of gold in the coming days.
And when prices of commodities go up, the net beneficiary would once again be American corporates who, anticipating these developments, would already have built up significant positions on these commodities or planned some other alternatives.
Originally posted by Vojvoda
FED cut interest rates to save financial sector is clear, if FED would raise interest rates it would happen 1929. The price of this is weaken and weaken $ with rising inflation.