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Interest increase pushes the dollar further up

The dollar continues to rise back to its pre-Katrina highs as the Fed increases the interest rates ones again. The Federal Reserve has raised the dollar interest rate once again, the 11th time since June 2004, in a quarter of a percentage point. The raise shows that the Federal Reserve is confident that hurricane Katrina's effect on the upcoming budget is minor and any threats to growth are merely temporary. Raising the interest helps the dollar in the forex market as higher revenues on dollar deposits will naturally attract many currency traders.

In yesterday's late trade, the euro fell to about $1.2124, from around $1.2160 briefly before the Federal Reserve has announced the raise and down about 0.1 percent in comparison to late Monday's trade. The dollar rose against the yen to about 111.90 yen from around 111.60 yen prior to the announcement and up 0.3 percent. The dollar is expected to rise even more thanks to the combined push of the interest raise and the aftermath of the German election. The uncertainty around who is going to be the next leader of one of the key countries in the euro block is very beneficial to the dollar.

Another crucial aspect to the fluctuation in the dollar rate is hurricane Rita. Distressing forecasts are scaring forex investors from taking any fresh positions, as the hurricane might give the final blow to the already crippled oil industry in Mexico Bay.

Phillip Green, Editor. September 22, 2005.

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