When we lower interest rates

[inishowen]

There is a cause and effect on the dollar when rates are dropped. As US citizens the benefits are fairly obvious. However, the corresponding influence on the dollar is a negative due to foreign investors seeking higher yields elsewhere. Low rates coupled with our credit troubles, has caused the dollar drop.

According to the Journal today the rise in the Yen is primarily due to "carry trades" where investors borrow money at Japan's .5 interest rate and invest the money in higher yielding vehicles. When the carry trade is closed investors have to buy back the Yen, causing the rise.