Why the US rate cut may kill the dollar

The recent cut in the benchmark interest rates by the US Federal Reserve by 75 basis points from 4.25 per cent to 3.50 per cent on January 22 and a further 50 basis points to 3 per cent on January 30 as a response to a possible recession in the United States has completely surprised analysts across the world.

Unprecedented as it is, this steep cut in the interest rates effected by the Fed has the potential to dynamite the US dollar, the US economy and, by extension, the global economy.

What could surprise many is the fact that the US Fed's prescription to reduce interest rates, ostensibly to tackle the prospect of a recession might well turn out to be its Waterloo. Put bluntly, the US faces as much of a risk of a recession after this rate cut as it did before.

Two economists end up usually giving rise to three opinions. Nevertheless, most of them are near unanimous in their view that the situation in the US economy is quite serious. In fact, many experts are veering to the view that the US economy -- the engine of the world economic growth -- is well and truly into recession.

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