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Headlines: American dollar rises thanks to Fed rate increase

In Business and Currency by Continental StaffLeave a Comment

Last weeks biggest business, currency, and travel stories: the Fed raises interest rates strengthening the American dollar, Canada and the UK hold rates and fall against the USD, the Bank of Canada is concerned about mortgage debt, and Venezuela continues its economic meltdown.

Fed Rate Rise

The US Federal Reserve increased interest rates by a quarter of a percent to 0.75% this week. Many experts predicted that a rise was imminent thanks to the American economy’s strong performance over the last year. Market reaction was tame as most businesses and traders had already factored in the probable rise. The move will strengthen the American dollar, and cause the CAD to drop further against the greenback.

Canada holds rates

The Bank of Canada, meanwhile, held interest rates earlier in the month at 0.5%. Economic conditions have not worsened – which may have encouraged a rate drop – but nor have they surpassed expectations. After the economic impact of low oil prices, a low loonie, and the Alberta oil fires the Canadian economy bounced back in Q3. Low rates mean that the loonie will remain weaker, which could be good for exports, but will mean higher import prices and a lower exchange rate against the American dollar.

American Dollar rises

Gold and the loonie both fell as the USD rose to its highest level in a decade thanks to the recent Fed rate rise. Gold fell by $33.90 per ounce, and the CAD fell 0.42 cents on the American dollar. Oil prices also fell for two days in a row as January crude contracts dropped $0.14.

Canada mortgages

The Bank of Canada released a report saying that almost 33% of Canadians had high ratio mortgages which would not be allowed under new federal regulations. People who have mortgages with ratios exceeding 450% more than doubled over the last three years. Unsurprisingly many such mortgages are in the GTA and Vancouver. High house prices have been a recurring new story across Canada in the last few years. According to the Canadian Real Estate Association house prices have risen 7% in the last year to $489,591.

Venezuela withdraws currency

Venezuela has declared that the 100 bolívar note is no longer valid currency. President Nicolas Maduro, who leads the socialist government, has also closed the borders with Brazil and Colombia. The decision is being justified by the government as a preventative measure to stop “mafias” from hoarding and disrupting the currency but economists see little advantage to the policy. Venezuela’s economy has been in turmoil since oil prices began to dip. Oil revenue propped up the failed economic policies of the country’s government.

UK interest rates unchanged, pound falls

UK interest rates, like Canada, will remain unchanged. The Bank of England elected to keep rates at 0.25%. The move, combined by a rate rise by the Fed (which strengthened the American dollar) caused the pound to fall to $1.25.

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