What is the effect in USD currency when Federal Reserve lower interest rates?
Lower interest rates usually translate into lower demand for the currency (since the return on holding it is lower). Fewer foreigners will want to hold TBills etc. Lower demand makes for falling exchange rates. The ‘carry trade’ involves the borrowing of USD at low interest rates to buy things like New Zealand bonds, which pay higher interest. As long as nobody defaults, it’s free money (slight exaggeration).
