The Federal Reserve cut its key interest rate by a significant half point on Wednesday, continuing its first rate cut in four years. As a result, the value of the dollar abroad decreased slightly. However, if you are planning to go abroad soon, you do not need to run to the nearest exchange office.
Because the rate cut has long been predicted, it is largely priced into the value of the dollar in international markets.
“Exchange rates tend to adjust when a decline is expected,” Laura Veldkamp, professor of economics and finance at Columbia Business School, told USA TODAY on Tuesday before the decision was announced. “The level of the exchange rate is below what people are likely to lose.”
Veldkamp said the bigger change would occur if the Fed meets expectations and either leaves or raises interest rates on Wednesday. Such a surprising change in expectations could have caused a larger jump in the value of the dollar against foreign currency.
“If you need currency, buy it when you need it,” Veldkamp said, especially since any exchange rate adjustments following the Fed’s decision will likely be minimal. “Overall, currency speculation is a very bad idea. . . . Even professionals don’t do it very well.”
