The dollar fell to a record low against the euro Tuesday morning as traders calculated that U.S. credit market losses will further hurt U.S. economic growth.

The dollar weakened about 1.25 cents to $1.6048 versus the euro before regaining some ground to $1.5995. The dollar also fell one cent versus the British pound to $2.0057 and 1.85 yen to 104.20 versus Japan's yen.

Currency trader Andrew Resnick told BloggingStocks Tuesday the equation is a basic one: with more dollars in supply, each dollar is worth less.

"The Fannie Mae and Freddie Mac assistance packages will require more federal spending or federal support though guarantees. That action, plus FDIC takeover of problem banks means more federal outlays, which weakens the value of the dollar," Resnick said. "We've been in a period of increasing federal outlays for the past five years, although I don't think anyone in 2003 anticipated that federal spending would increase to this degree."

Investors have watched the precipitous fall in the U.S. dollar over the past few years with trepidation. Investors in Israeli stocks trading in the U.S. have witnessed the once-lowly shekel dominate the dollar (and most other global currencies) over the past two years. It looks, at least from some uber-investors' perspectives, that the dollar may be set to reverse -- a boon for those companies with significant sales in the U.S.

Bloomberg has an article out this morning saying that bond guru, Bill Gross, the manager of the world's largest bond fund, the $129 billion Pimco Total Return Fund, has turned negative on the euro for the first time since its inception in 1999. According to the article, Gross's firm, Pimco, believes that according to purchasing power parity, a measure used to account for differences in exchange rates across countries, the euro is overvalued by 30%.

And Gross isn't the only one who is concerned that Europe may suffer a bigger slowdown than the U.S. in a world confronted with slowing growth and financial snafus. The same Bloomberg article says that according to a recent poll conducted by Bloomberg of global strategists, many think that the euro has seen its day and that the dollar is poised for a rally (hard to believe in the face of Fannie Mae and IndyMac).

Europe's Trichet-led Central Bank has signaled that it may be done raising rates. In fact, given the choice between fighting inflation and re-energizing a sputtering economy, some are betting that the ECB may need to actually lower rates. With a Fed-led plan to bailout the U.S. banking system and the bottoming out of the dollar, it looks like Gross and Co. are betting against the euro for years to come.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

We have posted numerous articles about the acquisition of Anheuser-Busch (NYSE: BUD) by InBev (NV) and it now looks like the deal has been done at a price of $70 per share. However, what made this deal work for InBev might have been that the dollar has fallen so far.

The exchange rate between the dollar and Euro gives InBev a 30% to 35% discount making the acquisition price seem like a great deal for BUD shareholders but an even better one for InBev shareholders. And if the the currency exchange rates shift back over time then all the shareholders win.

This means that Americans will be answering to the Dutch Belgians. If the dollar had gained against the Euro instead of becoming weaker is it possible that Anheuser-Busch (BUD) would have bought out InBev (NV)? If the dollar stays down or drifts lower as seems likely right now look for more M&A activity from abroad.

In the mean time, since 'my pal Warren', is the largest shareholder of BUD through Berkshire Hathaway (NYSE: BRK.A) and supports the deal, will he remain a shareholder of the new company? No doubt this increases the value of Berkshire, but does this set the stage for Buffett to enter the European market in a big way?

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B.

Traders on the long side of dollar trades cheered the U.S. Treasury's plan to shore-up Fannie Mae and Freddie Mac, as the dollar rose against the world's other major currencies.

The dollar strengthened about one-half cent to $1.5874 versus the euro and two-tenths of a yen to 106.46 versus Japan's yen in Monday morning trading. The dollar was virtually unchanged against the British pound at $1.9877.

On Sunday night, U.S. Treasury Secretary announced a sweeping rescue package and asked Congress for the authority to buy unlimited stakes in and lend to Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), aiming to head-off a collapse in confidence, Bloomberg News reported Monday. Separately, the U.S. Federal Reserve approved Fannie's and Freddie's ability to borrow directly from the central bank.

'Wait and see approach'

Currency Trader Andrew Resnick told BloggingStocks Monday even though the currency and stock markets have initially reacted favorably to the Treasury's / Fed's measures, many currency traders are taking a "wait and see approach" until they know what financial form the assistance to Fannie and Freddie is likely to take.

The dollar was on-pace to record another weekly decline Friday - - undoing the gains against the euro and pound earlier this summer- - as traders and analysts debated the likely next step for the U.S. Congress and/or the U.S. Federal Reserve on the heels of possible additional massive, mortgage-asset-related write-downs by Fannie Mae and Freddie Mac.

The dollar traded at about $1.5888 to the euro Friday at mid-day, down about 1 cent, and also within about 1 cent of an all-time low versus the euro. The dollar also traded at $1.9878 to the British pound, also down about 1 cent, and off about 1 yen to 106.09 versus Japan's yen.

Currency trader Andrew Resnick said that given the dollar's decade-long slide versus the world's other major currencies, it's difficult to fathom further dollar declines, but that's what the economic fundamentals suggest.

"From one perspective, you have to ask, at what point do central bankers say the dollar's slide poses serious risks of commodity prices rises and inflation, with negative consequences for global growth?" Resnick. "On the scale of competing demands, you can make a strong argument that the dollar can not be permitted to slide much further."

However, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), which face additional losses, Bloomberg News reported Friday, could come under full control, also called conservatorship, of government regulators, or receive bridge loans from the U.S. Congress or the Fed, Resnick said, absent a private equity investment. In any event, if Fannie's and Freddie's additional losses hit key levels, "we're looking at another enormous government obligation, and that's not good news for the dollar," Resnick said. "It means more dollars in circulation, which combined with the weak U.S. economy, will drive the dollar lower."

Resnick added that he presently is short with the dollar in the euro / dollar, British pound / dollar, and yen / dollar currency pairings.

At first glance - - investigating whether OPEC will be able to stunt oil's rise to $150 per barrel may seem moot.

Not so, says energy trader Jim Dietz, and he cited three reasons.

First, the oil shorts - - those who believe oil is overpriced / too high - - are likely to mount a rigorous defense of $150. (Oil traded up $4.75 to $146.40 per barrel Friday at mid-day after hitting a record high of $147.27 earlier in the day.) "It will not be an easy barrier to mount. It will be easier to break than the $100 barrier but keep in mind it took several months and at least 5 sequences to break $100, once we got within the range," Dietz said. "Look for almost as tough price resistance at $150."

Second, many oil longs - - those who calculated that oil is trending higher - - will take profits at $150, Dietz said. "The $150 mark will result in many players and institutions cashing in their long trades, on rationality grounds," Dietz said. "For example, if you established trades at $80 or $85, common sense says $150 represents a good time to exit. Likewise for more-daring institutions that went long above $100. The thinking will be 'We're at $150 after a high entry point. How long do we expect this insanity to go on? Let's take some profits and reduce our exposure.' That will add to selling pressure." Dietz added that he is presently flat, or has no open energy trading positions - - his normal stance for a Friday in the summer.

Finally, those facts, combined with already-announced oil production increases by Saudi Arabia, will enhance OPEC's ability to slow gains in the price of oil near/at $150 per barrel, Dietz said. Further, Dietz believes Saudi Arabia will announce still another production increase, perhaps as large as 300,000 barrels, to calm markets, "and eliminate doubts in some energy corners about its spare capacity and ability to ramp-up production."

If the leading ECB official is correct, the West is about witness yet another episode of 'That 70s Inflation Show'.

European Central Bank President Jean-Claude Trichet warned Wednesday that euro nations are already seeing the first signs of a wage-price inflation spiral, and called on governments to exercise discipline by not granting wage hikes that could further fan inflation via consequent price rises, The Associated Press reported.

The ECB's governing council "is strongly concerned that price and wage-setting behavior could add to inflationary pressures," Trichet told the European Parliament, while also defending the ECB's decision last Thursday to increase interest rates. "First signs are already emerging in some regions of the euro area."

A wage-price spiral typically occurs when employees and others seek wage increases to keep pace with rising prices. The increased wages ratchet up employer costs, who pass the added costs on to consumers via higher prices, perpetuating the wage-price spiral.

Trichet's concern: Rising European inflation

Since January 2001, the dollar has lost much of its value. It's fallen 71% in value from the 92 cents to the Euro at which it traded back then. This is great news for Europeans who have a chance to come to the U.S.

I am teaching a group of students from Italy this month. Their friends advised them to come to the U.S. with empty suitcases so they could fill them up with clothing and other retail goods. That's because when they come here, the clothing that they buy in Europe looks to be on a 50% off sale. This leads to what may be an investment opportunity for Americans -- Polo Ralph Lauren (NYSE: RL). (Its stock is not overpriced; it's lost 39% of its value in the last year and it trades at a price earnings-to-growth (PEG) ratio of 1.2 -- a P/E of 15.7 and earnings forecast to grow 12.8% to $4.51 in 2009.)

How so? The Italian students are eager to gobble up as much of its merchandise as they can. If these students are a microcosm of Europeans, we can expect them to flock to the East Coast of the U.S. during their summer break to boost their wardrobes. They also like Lacoste and Gucci as well -- both of whose products are selling at screaming discounts here for those who get paid in Euros.

The European Central Bank's quarter point interest rate increase has been called 'counter-productive,' 'unnecessary,' even 'self-defeating.'

All of which begs the question, why did the ECB last Thursday increase interest rates so soon? (The ECB increased its key interest rate, the refinance rate, a quarter point to 4.25%, last Thursday.)

One argument is euro zone inflation, presently running at about a 3.7% annualized rate. That's well above the ECB's 2% inflation limit.

OPEC President Chakib Khelil Monday blamed the U.S. Federal Reserve for sky-high oil prices, The Associated Press reported, adding that surging prices are not likely to decline.

Khelil said he believes the declining dollar has pushed oil higher and that the Fed's interest rate reductions to boost the U.S. economy are the primary reason for the dollar's decline, the AP reported Monday.

In an effort to jump-start the U.S. economy slowed by the nation's worst housing slump in a generation, the Fed has cut short-term interest rates by 325 basis points to 2% since September 2007.

Khelil's comments did not push oil higher as of early Monday afternoon. Oil traders looked past those comments and focused on the dollar's rise for the day versus the euro and pound, and new data points suggesting a deeper, longer U.S. recession, energy trader Jim Dietz told BloggingStocks Monday. Oil fell $3.70 to $141.59 per barrel, with futures hitting a daily low of $140.15 earlier in the day.

Oil traders adopt 'defensive' stance

"Right now the oil market is focused on the U.S. economy not OPEC's comments, and many were spooked by the Freddie Mac and Fannie Mae announcement. Everything is in pullback mode now, oil, stocks, gold, other commodities. The mood is defensive...preserve capital, basically," Dietz said.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) may have to raise up to $46 billion and $29 billion in capital, according to Lehman Brothers (NYSE: LEH), Bloomberg News reported Monday. Fannie Mae fell $3.17 to $15.61 while Freddie Mac declined $2.51 to $11.99 in Monday afternoon trading.

The need to fulfill promises of increased aid for Africa, and a general agreement between the United States and Russia on an approach to Iran's nuclear program took center stage as leaders from the Group of Eight industrial nations met Monday in Japan, The Associated Press reported.

President Bush, attending his last summit as a sitting U.S. president, underscored the importance of providing aid for Africa, calling on wealthy nations to provide mosquito netting and other aid to prevent needless deaths, the AP reported.

Basic items - - even equipment as basic as mosquito netting - - can reduce mortality rates in sections of Africa. Mosquito netting prevents children and others from dieing of bites from disease-carrying mosquitoes.

In 2005 the G-8 pledged to increase global aid to $130 billion, and increase assistance to Africa to $50 billion. ONE, a nonpartisan group working to end extreme poverty, predicted that the U.S. and the United Kingdom will meet their commitments, while France, Italy, Germany and Canada are off the mark, Bloomberg News reported Monday.

Increased global food aid likely

Economist Glen Langan, whose specializations include agricultural economics, said increased aid for food and agricultural development will likely be announced by G-8 leaders at the summit, or soon thereafter, due to the rising cost of food's impact on poorer nations. "The aid will be targeted to meeting basic needs first, but with an eye toward directing some funds to self-sustaining agriculture," Langan said, adding that Africa "has the potential to achieve food production gains greater than South America."

Oil fell more than $5 to about $140 per barrel Monday morning after Iran's foreign minister expressed confidence in talks with western governments regarding the nation's nuclear program, Bloomberg News reported.

Iran's foreign minister Manouchehr Mottaki told CNN talks are "in a new environment" and "new approaches" are possible.

A rising dollar Monday morning also helped push oil lower. The dollar strengthened against the euro and the British pound on expectation G-8 industrial leaders will verbally support the dollar at an upcoming economic summit in Japan.

Oil fell $5.14 to $140.15 per barrel Monday morning before recovering slightly to $141.30. The other major energy commodities also plunged in early Monday trading. Heating oil plummeted 13 cents to $3.97 per gallon, unleaded gasoline fell about 10 cents to $3.47 per gallon, and natural gas plunged 42 cents to $13.16 per million BTUs.

Economist Glen Langan, who argues that fundamentals (primarily rising demand) are the major factors determining oil's price, said legitimate progress on the Iran uranium enrichment issue would ease traders' concerns about Iran's supply. "Iran is still OPEC's No. 2 producer and a major exporter of oil, so lasting good news with regard to Iran will ease traders minds about tensions in and near the Persian Gulf. That will take some pressure off prices," Langan said. About 20% of the world's oil flows through the Persian Gulf and the Strait of Hormuz.

The dollar rose to its highest level in more than a week Monday morning on talk leaders at the G-8 summit in Japan will support the currency in an attempt to halt rising commodity prices.

The dollar strengthened about one-half cent versus the euro to $1.5629 and about 1 cent versus the British pound to $1.9659 in Monday morning trading. The dollar also rose about one-half yen to 107.66 versus Japan's yen.

Ian Stannard, a senior currency strategist at BNP Paribas SA (NASDAQ: BNPQY), France's largest bank, told Bloomberg News Monday that support for the dollar in the form of verbal invention continues, driven by the thesis that a stronger dollar, globally, is in everyone's interest.

Many economists agree that a falling and weak dollar has been a factor in rising commodity prices. Oil and other commodities tend to rise when the dollar falls as investors / traders seek to preserve purchasing power of the decreased value of dollar-denominated commodities by bidding their price up. However, economists differ regarding the extent of the weak dollar's commodity-inflation impact, with some arguing it is only a mild factor.

'Actions speak louder than words'

Further, economist Peter Dawson told BloggingStocks Monday, dollar bulls should not feel too emboldened by a verbal stance by the G-8.

Another day, another oil record.

Oil easily pushed past $145 Thursday morning after traders calculated that the already weak dollar has further to fall after the European Central Bank increased a key interest rate by a quarter point to 4.25%.

Oil rose as much as $2.28 to $145.85 per barrel -- an all-time high -- before easing back slightly to trade at $144.40 at mid-day.

Oil tends to rise when the dollar falls as investors/traders seek to preserve purchasing power of the decreased value of dollar-denominated commodities by bidding their price up. However, it's important to note that the dollar/oil correlation is not perfect: there have been instances in which the dollar fell and oil fell.

These days, European Central Bank President Jean-Claude Trichet isn't too popular in currency market circles, if one trader is any indication.

Trichet, a legendary inflation hawk, campaigned for and secured a quarter-point interest rate increase Thursday, to 4.25%, in the ECB's key, short-term interest rate, the refinance rate. Many economists thought Trichet's action was premature, despite Europe's 3.7% annualized inflation rate, and that it could spell further economic slowing Europe. Unbowed, Trichet plowed ahead.

With the above as a backdrop, many currency traders, Andrew Resnick among them, plowed ahead with euro-long trades on the calculation that a higher interest rate for the euro will cause the euro to rise. Resnick went long with the euro in the euro-dollar currency pairing.

But then what did Trichet do? He stated at the regular post-ECB rate decision press conference that he has "no bias" and that "we have no pre-commitment" to raise rates further - - signaling that one interest rate increase may be enough, Bloomberg News reported.

The result? The euro plunged versus the dollar after his comments: it fell 1.2 cents - - a large price move in the currency market - - to $1.5758 Thursday morning.

And with it plunged Resnick's profits for the day. All his trades were stopped-out for losses.

'Trichet is making many friends among traders'

"Trichet," Resnick said, "isn't making many friends among traders, and probably not among business executives and economists as well." Resnick followed his evaluation of Trichet's social standing with several candid and frank, descriptive, colorful comments about the ECB president that can't be published here. Suffice it to say that Resnick is not happy with Trichet's two-step.