In late January, the Federal Reserve announced it will leave interest rates unchanged for 2012—and keep them at low levels through late 2014.
As a result, thoughts about what the U.S. dollar will do next are changing and the outside markets are adjusting. The Fed hopes that by maintaining low interest rates, rather than waiting and letting the market play itself out, it will help spark inflation and create growth.
In the past few months, inflation has subsided, the U.S. dollar has strengthened and the stock market has rallied. Many analysts were bullish about the U.S. dollar heading into 2012, based on the possibility of a complete fallout in Europe and more people searching for a safe haven for their money. But with the Fed’s announcement, perspectives on the direction of the dollar have flip-flopped and are now bearish. Many agencies are pulling their U.S. stock market rating back to neutral.
The European Central Bank (ECB) is under fire to cut back on a portion of the Greek debt it currently holds. The market will be closely watching this situation. If the ECB takes a financial hit, the market might become more at ease with the debt crisis, European stocks might rally and the U.S. dollar could fall under additional pressure.