Fed rate hold sends dollar down

Photo: Epicharmus

The Federal Reserve's decision this week to keep interest rates at historic lows has sent the dollar into decline.

The US economy has been improving significantly in the past year, fuelling anticipating of a rate hike by the Federal Reserve, much like the expectations in the UK. The dollar, meanwhile, has also risen, boosting US spending power overseas when it comes to holiday homes and real estate investments.

The Fed, though, has proven cautious in raising rates, with global economic concerns, such as the Chinese financial slowdown, adding to the general feeling of uncertainty. Now, the Fed is expected to wait until early next year to hike rates.

In response, the dollar fell to a three-week low, while gold prices climbed.

Some experts also believe that the move - or lack thereof - could also spark a currency war among countries.

"The Fed inaction could spur other central banks into action," Valentin Marinov, managing director and head of G10 FX research at Credit Agricole, told CNBC.

Indeed, as the impact of a weaker dollar ripples around other export-focused countries, Marinov predicts that the European Central bank could step up its quantitative easing, which would weaken the euro too, while China could also devalue its own currency further.