The dollar strengthened last week against a basket of currencies, most notably against the yen as the new Japanese government is expected to pursue a very accommodative fiscal policy to boost economic growth.
The dollar index, which shows the value of the US against the six most important world currencies, rose 0.9 percent last week to 97.78 points. According to the European currency, the dollar strengthened by 0.7 percent, so the euro rate fell to 1.1785 dollars.
The American currency also strengthened against the Japanese one, by 1.5 percent, so the price of the dollar reached 155.05 yen.
The sharp fall of the yen is a consequence of the announcement by Japanese Prime Minister Sanae Takaichi, after winning the extraordinary parliamentary elections, that she will increase public spending and reduce taxes in order to stimulate economic growth.
The minutes from the last session of the Fed also contributed to the strengthening of the dollar, which showed that almost all the leaders of the central bank voted to keep interest rates unchanged.
“Some participants commented that it would probably be appropriate to keep the interest rate steady for a while while the Board carefully assesses incoming data, and a number of those participants assessed that further policy easing may not be warranted until there are clear indications that the progress of disinflation is firmly back on track,” the minutes said, according to SEEbiz.
Moreover, some even considered the idea that a rate hike could be discussed and wanted the post-meeting statement to more closely reflect “a two-pronged description of the Board’s future interest rate decisions.”
Such a description would reflect “the possibility that upward adjustments to the target range of the federal funds rate may be appropriate if inflation remains above the target level.”
The Fed cut its benchmark interest rate by three-quarters of a percentage point in successive cuts in September, October and December. Those moves brought the key interest rate to a range between 3.5% and 3.75
