How Low can Interest Rates Go?

The Federal Reserve has already lowered the interest rate to 1%. This is the lowest ever interest rate. Bernanke is following the footsteps of his predecessor, Greenspan, in an effort to stimulate the economy.

In the current global crisis, which is definitely the biggest since the great depression, these low interest rates don’t seem to weaken the US dollar. All the other major central banks have also lowered their interest rates.

In these troubled times, the American dollar seems like a safe haven.

But how long will it last?

The current speculations in the market see a further decrease in interest rates – probably to 0.5%! This Japanese style rate is unprecedented. It can’t go much lower. Rock bottom rates like these for the US dollar will start a new era in forex trading.

Most countries still favor a stronger dollar over a weaker one, and the events of the past months have proven that. The dollar is still the most important currency in the world, used for trade almost everywhere. Exports from countries outside the US are usually priced in dollars, and exports to the consumer-centric USA are a crucial income for many countries.

But with higher unemployment, bankrupts, and toughening American banks, a rock bottom interest might be a blow that the US dollar could not withstand.

Interesting times indeed are waiting for us in 2009.