First principles

Tuesday’s unexpectedly deep cut in the overnight US interest rate hurt the dollar right away. That adjustment was almost mechanical. But the greater risk to the greenback comes later, when US creditors digest the Federal Reserve Board’s philosophical leanings. Currency traders follow some basic rules. One of them is that currencies which yield less are worth less. So when the US central bank cut by 50 basis points, instead of the roughly 35 bps that had been priced in to the futures market, the ...