Dollar follows UK downgrade and trades at five-month low

Posted May 22nd 2009 11:30AM by Connie Madon
Filed under: International Markets, Market Matters

Yesterday S&P downgraded its outlook for the British economy to "negative" because government debt in the U.K. may equal 100% of GDP. The pound tumbled on the news.

Today the dollar followed suit and dropped to a five-month low, indicating just how fast these markets can move. The drop was blamed on yesterday's downgrade. The dollar fell 0.4% to $1.3941 against the euro, 0.1% against the pound to $1.5839 and 0.2% to Y94.17 against the yen. The dollar index, which is valued against a basket of currencies, dropped 0.2% to $80.349

Traders are now fearful the U.S. may go the way of the U.K. and that U.S. debt may be downgraded. We must always focus on the dollar because it is the linch pin that holds our economy together.

A continued drop in the dollar could set a nasty set of new problems in motion, one of which would be a drop in the price of U.S. treasuries.That would, in turn, cause interest rates to rise (bond prices and yields move in opposite directions. As prices drop, interest rates go up.) There could also be trouble in the stock market. Traders do not like uncertainty. Up to now we've had a nice rally. Let's hope it continues.

Keep an eye on the dollar when making your trading decisions.

Do you believe that the dollar will fall further?

Tags: dollar, inthenews, pound downgrade, PoundDowngrade, SP downgrade, SpDowngrade, UK

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Reader Comments (Page 1 of 1)

5-29-2009 @ 12:12PM

Doug T said...

Good article. No fear mongering or ultra pessimistic remarks. I certainly assume the US dollar could go lower in the near term, due to the federal bail out money in play and coporate / investment sentiment at such low levels. http://www.mutualfundwealth.com/

5-22-2009 @ 12:40PM

clikdawg said...

"What goes up, must come down
Spinning wheel got to go round
Talkin' 'bout your troubles, it's a cryin' sin
Ride a painted pony, let the spinning wheel spin

"You got no money and you, you got no home
Spinning wheel, all alone
Talkin' 'bout your troubles and you, you never learn
Ride a painted pony, let the spinning wheel turn

"Did you find a directing sign on the straight and narrow highway?
Would you mind a reflecting sign?
Just let it shine within your mind
And show you the colors that are real

"Someone is waiting just for you
Spinning wheel spinning through
Drop all your troubles by the riverside
Catch a painted pony on the spinning wheel ride --
Ha!"

"Spinning Wheel" (Blood, Sweat & Tears)