The U.S. dollar fell to a record low against the euro and to a yearly low against Japan's yen Monday on concerns the slumping U.S. economy will increase mortgage defaults and housing losses, Bloomberg News reported.The dollar deteriorated about 1 cent to $1.5277 against the euro before paring back to $1.5177. The dollar also fell about 1 yen against Japan's currency, to 102.59 yen, before re-gaining some ground to 103.05 by midday trading. However, the dollar held firm against the British pound, losing just one-fifth of a cent to $1.9820.
Dollar doldrums
A series of macroeconomic and monetary factors has synthesized to create a bearish condition for the dollar. The U.S. economy is near, or already in, a recession, reducing demand for dollar-denominated assets. The U.S. Federal Reserve is likely to lower benchmark interest rates further in an attempt to reverse the economy's contraction path. In addition, high oil prices are driving up the already above-trend U.S. trade deficit, flooding the world with more dollars. Finally, the U.S. continues to import more than it exports, increasing U.S.'s demand for foreign currencies, further reducing the dollar's value.
"I guess the pound has been out of the dollar's latest run down the hill. Most likely, that's because institutions and traders sense that the Bank of England will have to cut interest rates again to stimulate the the U.K. economy," economist Mark Chandler, based in London, told BloggingStocks Monday. Chandler added that he does not hold trading positions in any currencies.
The Bank of England and the European Central Bank will each meet Thursday to discuss their respective monetary policies.
Market Analysis: Having breached one key psychological resistance, the euro at $1.50, the declining dollar now seems ready to breach another, the dollar at 100 yen. Historically, currency traders would become concerned that the dollar's fall below 105 yen would spark a Bank of Japan intervention to prop up the dollar, as a falling dollar increases the price of Japan's exports to the U.S. if exporters pass along the added cost. But the record rise in oil's price to over $100 -- and Japan's status as a major oil importer -- has perhaps convinced Japan's monetary officials to let the yen appreciate to 100 yen or even 95 yen to the dollar to somewhat offset those surging oil costs.
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Reader Comments (Page 1 of 1)
3-03-2008 @ 1:32PM
Becktemba said...
Right now the dollar needs to fall to prop up our economy! The Chinese Yuan needs to rise before our dollar should start to rise behind it.
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3-03-2008 @ 6:23PM
Americas Watchdog said...
We have the National Mortgage Complaint Center & the Corporate Whistle Blower Center & we think the falling dollar is going to be a disaster.
1. The Feds rate reductions are having zero impact on real estate. We expect 2,000,000 foreclosures in 2008 & 2,200,000 in 2009. We also continue to see falling US real estate values in 2008 (10% in 2008) & the same in 2009. The Congressional mortgage bail outs are a joke that will fail.
2. A weak dollar will not add new US jobs, it simply makes everything more expensive in the US. I.E. Gas, Electric, Food, labor, etc. When the CPI goes to 5% or 6% in 2008 what will the Congress do with Medicare & Social Security? A falling dollar will simply contract the economy more giving us higher unemployment.
3. Today Gold & Oil hit new records. We would say that Ben & the Fed have failed big time. Inflation is already with us and its about to get worse.
4. Hillary & Obama want to give away health care"? Hillary says "health care is a right". Its only 2,000,000,000,000 (2 trillion) per year.
5. We would suggest selecting a good hole in your back yard to put your assets. While most missed it..........the Office Of Thrift Supervision is hiring individuals (out of retirement) who worked for the Resolution Trust Agency (RTA) from the S & L Crisis in the 1980s. (Wall Street Journal last Tuesday).
What ever happened to Wall Street looking 6 to 10 months out?
3-04-2008 @ 9:33AM
mathman said...
All a weakening dollar will do will be to cause U.S. assets to be a firesale for foreign holders. In their curency U.S. assets are cheap. So if you wish foreigners to hold our assets go right ahead and continue to weaken the dollar
Weakening dollar is a horrible mistake. Our country is a debt junkie. We must constantly go out and borrow money abroad.We currently owe 1 trillion dollars to Asia. This being the case foreigners have an incentive tol hold our debt either if the U.S. currency increases in value or interest rates go up. If the dollar continues to fall then interest rates must come under presure to rise. If we cannot borrow money, i.e. the U.S. is no longer a reserve currency then we will be forced to print more money . This will lead to higher and higher inflation as the value of moneydecreases.
I have heard the argument that a decliing dollar is good for export. Great,but we import considerably more then we export. All that will happen is the cost of imported goods will be under pressure torise to significantly higher levels. I would agree a declining dollar might help if we cut our dependency on foreign crde. Good luck to that idea
Finally a declining dollar will lead to higher commodity prices. Commodities are priced in terms of a basket of goods and services. If the dollar declines in value the basket decreases in value to the commodity holder so its price must go up (technically we require more baskets of goods and services). More ande more inflation will factor into the economy
The net consequence to our country is:
No jobs
Higher inflation
Foreigners control domestic assets
U.S. becomes the biggest banana republic in the world