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What Fed Action Would Mean for the Dollar

When the Federal Reserve hinted Wednesday more stimulus could be on the way, the dollar sunk. While it remains unclear how or when the Fed might act, investing pros say it may still make sense to dial back on the greenback.


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Minutes released from the Fed’s latest meeting noted that more officials feel monetary action would be needed “fairly soon” without signs of “a substantial and sustainable strengthening in the pace of the economic recovery.” Fed officials discussed launching another bond-buying program, extending their guidance on how long interest rates could stay near zero, and lowering the rate the Fed pays banks for reserves, according to the minutes.

Advisers say each of those efforts could potentially lead to a weaker dollar — albeit to different extents. But some pros say that even if the Fed doesn’t act, the dollar could still lose ground against the euro and other currencies in coming months and years. Certain foreign currencies should do well, whether “the Fed says they’re going to stimulate the economy or not,” says Chris Gaffney, senior vice president of EverBank World Markets.

Investors might consider balancing their domestic exposure with a stake in currencies and commodities that would benefit if the dollar dropped in value. Rick Scott, chief investment officer at L&S Advisors in Los Angeles, says he invests up to 10% of a client’s portfolio in gold, which tends to rise in price when investors worry about inflation, by using an exchange-traded fund like the $9.8 billion iShares Gold Trust (IAU). Some investors may also want to buy ETFs that invest in crude oil, which generally gains when the dollar depreciates, he says.

When Ben Bernanke speaks in Jackson Hole at the annual symposium of economists and policymakers next Friday, investors may get more clarity on where the Fed is headed. But many pros say any possible action is more likely to be announced at the Fed ’s next regular meeting on Sept. 12 and 13. By then, Fed officials will have more information to help them make a decision, including another monthly unemployment report.

To be sure, some experts — including Fed officials — doubt that further bond buying by the Fed will lift the economy. Banks are still hesitant to lend to consumers, a trend that is keeping a lid on the housing market and retail spending, advisers say. Others argue that any action from the Fed would also have a minimal impact on markets, since many investors who have been counting on additional stimulus already pushed stocks higher and the dollar lower.

And regardless of whether the Fed acts, investors should expect to see more volatility in currency markets, says Alfonso Esparza, a currency analyst with trading platform Oanda. That is partly why Paul Christopher, chief international strategist for Wells Fargo Advisors, recommends a more balanced approach between defensive and cyclical currencies and commodities. Christopher is splitting his commodity allocations between gold, which should outperform when investors are being cautious, and energy stocks, which should gain if economic activity picks up. When it comes to currencies from developed countries, he is dividing his investments between the Japanese yen, a safe haven currency, and the Norwegian krone, which should benefit if oil prices rise.




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    • US dollar is the place to be. Entire population is awash in debt! That is the problem. Current debt levels are still huge compared to GDP. History shows debt to GDP ratio will snap back to the mean. This makes a case for deflation to continue. Here is our excessive debt problem:


    • I agree with you “your next”. After reading creature from Jekyll island–I thought it might be a conspiracy book. I then watched a PBS special on john Rockefeller jr. He married the daughter of rep. Nelson Aldrich –who’s railroad car was where a secret meeting was held to create a money cartel to control interest rates. Aldrich sponsored a bill to get the government to create the fed as lender of last resort. I met an economist with the fed about a year ago at a rotary lunch. About a month earlier, bernake held a town hall meeting in my home town. A woman asked him if the fed were an agency if the government. He said, yes. I asked the fed economist about it –he said it was a privately owned bank. I asked him then, who owned it? He said “member banks”. I asked him how I could become a member bank–he said I’d have to be voted on by current member banks and then buy shares in the fed. When I asked him, where all this bailout money is coming from–he said sales of bonds, treasuries, etc. I said–so we don’t really have the money…he said, no, we don’t. Someone explain to me this…we’re being told that CONSUMER confidence is down. Uncertainty remains. It’s the consumers buying habits that will get the economy back on track. Why then, is another QE 2 or operation twist, etc needed? The government is being charged interest for these bailouts, which is paid by the taxpayer. The bank doesn’t have the money…they earn interest on nothing. Does the economy need more money? Banks are sitting on piles of it, afraid to lend. Consumers are afraid to borrow due to layoffs, uncertainty, debt. The interest rates can’t go any lower to encourage borrowing, which would get consumers to buy, so business returns and hiring takes place. If any bailout is needed, I vote for a CONSUMER bailout. Every American citizen over 25 gets a $25,000 check that has to be SPENT over the next five years in America. This might be a trillion dollar bailout, amortized over the next decade that the taxpayer will pay (just like all other fed bailouts). Consumers will begin to spend–and probably more than they got in bailout money. Business will ramp up and hire to meet demand . If this doesnt jump start the economy, what else will? But, alas–this would be a transfer of wealth…from the banks profit back to the consumer. It would cut into their profits–as they would only make interest on the trillion dollar bailout–not the actual trillion as profit. Am I right on this?

    • Corporate media news reports state that former Marine Brandon Raub was arrested by the FBI and the Secret Service and detained in a psychiatric hospital for anti-government posts on Facebook.

      A large part of Raub’s post, however, was not directed at the government. It was directed at the Federal Reserve. The Fed is not the government. It is a privately owned financial institution run by a cartel of banksters.

      Brandon Raub: Persecuted for Telling the Truth About the Federal Reserve 230812raub3

      Millions of Americans believe the Federal Reserve is a federal agency despite the fact the Ninth Circuit Court ruled in 1982 that “the Reserve Banks are not federal instrumentalities for purposes of the FTCA, but are independent, privately-owned and locally controlled corporations.”

      Brandon knows what Congressman Charles Lindbergh, Congressman Louis T. McFadden, Congressman Wright Patman, Senator Barry Goldwater and others brave enough to speak their minds knew: the Federal Reserve is a criminal operation of the international money lenders and swindlers, it functions as a shadow government and has usurped the real government of the people of the United States by arrogant credit monopoly.

      “The Federal Reserve is wrong. They have designed a system based off of greed and fear. They designed a system to crush the middle class between taxes and inflation. This is wrong, and it is unjust. It is wrong,” Brandon wrote on November 11, 2011.

      “This thing has deceived our entire nation… They created it in 1913. They also created the income tax in 1913. They encouraged the growth of debt so they can tax you on it. There is interest on the debt. Your government is in bed with these people. They want to enslave you to the government so that they can control every aspect of your lives. It is an empire based on lies. They operate of greed and fear.

      Raub’s arrest by the secret political police run by the banksters who own the United States sets a precedent and sends out a warning: you may be arrested and deemed mentally insane and locked up against your will in a mental ward if you tell the truth about the Federal Reserve.

      The NDAA is not about al-Qaeda and terrorists. It’s about those of you who dare tell the truth. If the government considers you a threat like they consider Brandon Raub a threat, they may send out the secret political police and disappear you.

      After the economy collapses – a collapse engineered by the Federal Reserve and the international bankster who run it – and there is social chaos, the government may forgo the relative nicety of a mental ward and put a bullet in your head.

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