the dollar and the rumoured rate cut

[kagein]

I can understand why equites are doing well on the rumours of a rate cut, but i dont seem to understand why the dollar is doing well, as a lower interest rate means a lower rate of return for investors.

some help with this would be greatly appreciated:cheesy:

 

[Rhody Trader]

First of all, everything is relative in the currency markets. Interest rate moves only really matter if other countries aren't doing the same thing.

As for this particular circumstance, one of the reasons for the dollar being so weak up to now is the existing expectation of more rate reductions. It's baked in.

 

[ampro]

If you take a peek at a daily or weekly frame, it isn’t is it? It’s continuing to get whacked. Well certainly v/s it’s major $Index partners anyhow.

Approaching end of year….end of month balancing (this week)….profit taking on the Europeans at yearly highs….conflicting $ fundamentals (growth v/s inflation debate)….strained-tired-weary psychology….on/off credit risks…..thinning volumes….

Take your pick or perm any of the above really. When events start to conflict, become cloudy or simply begin to cancel each other out, players take a flight to safety and/or rein in their risk if they’re smart.

It’s been a real good year to be short the buck, not surprising that folks are trimming out profits as the market stutters & splutters.

 

[atomm]

Snapshot of Reuters news on Friday November 2007 : http://www.reuters.com/article/hotStocksNews/idUSN2061536920071130

NEW YORK (Reuters) - The dollar rallied across the board on Friday, posting its biggest weekly rise against a basket of currencies in more than a year, on profit-taking in the euro and month-end squaring up of positions by corporates.

The greenback was also supported by optimism that further Federal Reserve interest rate cuts would help the world's biggest economy avoid a recession, temporarily shifting market focus away from a diminishing yield appeal.
...
Traders attributed the dollar's surge to a combination of factors ranging from month-end transactions, chart levels, and a drop in the price of gold. Gold tumbled to a 10-day low on profit-taking.

"What we are seeing today is end of month and towards the end of the year profit-taking and squaring up of positions. That should lead the dollar to strengthen a little bit," said Mark Meadows, a currency strategist at Tempus Consulting in Washington.

"All the bad news for the dollar is factored in already. It's likely that from here until the end of the year the dollar may see bit of a reprieve," he said, adding that the euro could slip to $1.45 by year end.
...
The dollar also got a lift from a magazine report that Bahrain would maintain the dinar's peg to the greenback as OPEC prepares to meet next week amid growing pressure on some Gulf states to depeg their currencies of the sluggish dollar.

Fed Chairman Ben Bernanke hinted late on Thursday that the central bank might cut rates to help the economy weather a resurgence of financial market turmoil.

Lower U.S. interest rates usually weigh on the dollar because they reduce the yield on dollar-denominated assets, but this time analysts said the market was taking a longer view.
...
But some analysts still said the market was likely to continue being driven by interest rate differentials rather than stronger growth prospects and expected further monetary easing to undermine the dollar.
...

There are many opinions on the market. Many factors are in play, and IMO are very subjective but still influential in one way or another.