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U.S. dollar starts the big slide against major currencies

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  • #16
    The US dollar reached a low of 1.36 Euro (helping Warren Buffet earn $1.3 billions on the currency market), and reversed to as low as 1.16 (letting Buffet giving back nearly one billion).

    Now that it has reached 1.28, talks are beginning to surface that its about time the Dollar strengthen a bit again --- hence it came back to 1.27 as of today.

    "Unless you are 'born' again, you can never get into the kingdom of God" (John 3:3).


    • #17
      Stock market pundits say that a strong US $ attracts money flow to the US,
      and lowers the stock values in other countries due to sell-offs.

      But this article says the opposite..!

      How to reconcile these two contradictory aspects ?

      Can any economics expert explain..?


      • #18
        Dow plunges and Nasdaq turns negative on the year after CPI data:

        Stocks plunged Wednesday after a stronger-than-expected rise in consumer prices intensified Wall Street's fear that interest rates will keep climbing. The Dow Jones industrial average lost 200 points, and the Nasdaq composite index turned negative for the year.

        Investors were disappointed by a Labor Department report that its consumer price index swelled 0.6 percent in April, topping forecasts of 0.5 percent. But core CPI _ without food and energy _ also gained 0.3 percent, ahead of economists' prediction and adding to worries that soaring oil prices have begun to lift prices elsewhere.

        The inflation data dragged bonds lower and overshadowed solid earnings from Hewlett-Packard Co. and cooling oil prices. Wall Street has been anxious about economic news after the Federal Reserve last week said more rate hikes could be needed to battle inflationary pressures from record commodities prices.

        "The CPI data really kicked the market in the teeth today," said Ken Tower, chief market strategist for Schwab's CyberTrader. "So the question now really is where can we find some support?"

        With the Dow coming within 75 points of its all-time high of 11,722.98 last week, many analysts felt the market was overbought and would soon see a correction. But Tower said stocks are now oversold after several days of steep losses, suggesting that investors may start looking for positive signs to spur buying.

        In midafternoon trading, the Dow sank 200.03, or 1.75 percent, to 11,219.86, a one-month low. The Dow was poised to log its biggest single-day drop since falling 213 points on Jan. 20.

        Broader stock indicators declined. The Standard & Poor's 500 index was down 18.26, or 1.41 percent, at 1,273.82; the Nasdaq fell 25.93, or 1.16 percent, to 2,203.20, showing a loss for the first time in 2006.

        The prospect of higher interest rates hurt bonds, with the yield on the 10-year Treasury note surging to 5.17 percent from 5.1 percent late Tuesday. Last Friday, bond yields reached a four-year high of 5.19 percent.

        While Wednesday's retreat reflected Wall Street's ongoing nervousness about interest rates, investors may have gotten ahead of themselves before last week's Fed meeting. Many traders were betting that the central bank would pause its two-year streak of rate hikes, and catapulted the major indexes to fresh multiyear highs.

        The Fed boosted rates to 5 percent and left flexibility to pause its rate tightening. However, the Fed cautioned that soaring oil and gold prices threaten to drive inflation and could warrant higher interest rates to stifle demand and keep prices from escalating. The CPI report and Tuesday's producer price index reading reinforced that warning.

        Gregory Miller, SunTrust Banks' chief economist, said the market was still largely split on whether the Fed will increase the key short-term lending rate by another quarter percentage point when policymakers meet on June 29.

        "But it won't surprise me if this is when they decide to start the pause and allow data to accumulate," Miller said. Looking at data from the first half of the year, "I suspect what they'll find is energy prices will stop trending higher, and the slower growth numbers will accumulate."

        The U.S. dollar continued losing ground to the Japanese yen and also weighed on the market's mood, CyberTrader's Tower said. The dollar's retreat could propel inflation since more of the U.S. currency will be needed to purchase foreign-made goods.

        "The dollar has depreciated quite sharply since the Fed started talking about stopping its rate hikes," Tower said. "It's not so much that the dollar is depreciating _ it's the speed of the depreciation that is worrying the currency market. The dollar is down 6 percent in one month, which is a lot....."



        • #19
          Dollar falls on speculation central banks are reducing holdings


          • #20
            The dollar strenthened about a 100 pips today (5-17-06). I was too chicken and made only $100, instead of $1000. Oh well something is better than nothing.

            "Unless you are 'born' again, you can never get into the kingdom of God" (John 3:3).


            • #21
              Be careful not to play with fire, ya Theja,

              Things seem a little volatile at this time and the likelihood is that they will get worse, with regard to dollar value, before they get better, sa7?


              • #22
                Thanks for the advice, Khiyal.

                For currency sharks, volitility is paradise. But not for the tiny fish.

                The Yen will strengthen if China decide to let the market determine its (Yuan) currency.

                "Unless you are 'born' again, you can never get into the kingdom of God" (John 3:3).


                • #23
                  Take care ya Theja, a small fish may be tempted to swim close to a commotion to see what is happening and when enough are gathered then the sharks pounce.

                  That is how it is with speculation too, sa7? Sometimes unscrupulous people manipulate markets by issuing rosy forecasts and encouraging small investors to take risks - and leaving them to bear the burden of any collapse.

                  Did you ever see this short movie that was featured in the Sundance Film Festival?

                  I was accused of 'anti-Americanism' for posting it before, and didn't have the heart to point out to my critics that the movie was actually made IN America BY an American who said that he wanted it to be a patriotic 'wake up call'. In some respects it may be considered racist (against the Chinese AND the Americans), but there are some economics' lessons in it too:

                  Ha Ha Ha America

                  Press the little arrow on the left of the yellow bar to play. There is a bad word or two in it, but that is how such things are these days.

                  Tell me what you think after you have seen it.



                  • #24
                    Gold prices have broken US$700 an ounce, up from a 2001 low of $258 - and there are signs that worried central banks are buying gold to reduce their US dollar exposure. What brought about this looming return to the gold standard? Ask President George W Bush, whose policies have crippled the dollar as a store of value:

                    Gold is selling for more than US$700 an ounce, up from $258 in 2001 - and this is but one of the many signs of a flight to gold, which has become a worldwide phenomenon. We could yet see a return to the gold standard by the world's central banks. The main cause? The economic policies of the Bush White House - but this requires a bit of explanation.

                    Jewelry and industrial applications absorb 85% of new gold supplies. Although production has fallen a bit and industrial demand has increased, this alone cannot explain surging prices, because bringing new deposits on line would cost less than $700 an ounce. The big new players in the gold market are exchange-traded funds. These store bullion for investors who have lost confidence in the US dollar, and may be a precursor to a new gold standard.....

                    Back to the gold standard


                    • #25
                      And V.I Lenin once said that
                      when the Communists take power,
                      they will pave the public toilets & urinals with gold.!

                      On the contrary I did not see any gold in the toilets.!
                      Not even in the jewellery shops.


                      • #26

                        CONDITIONS in the financial markets are eerily similar to those that precipitated the “Black Monday” stock market crash of October 1987, according to leading City analysts.

                        A report by Barclays Capital says the run-up to the 1987 crash was characterised by a widening US current-account deficit, weak dollar, fears of rising inflation, a fading boom in American house prices, and the appointment of a new chairman of the Federal Reserve Board.

                        All have been happening in recent months, with market nerves on edge last week over fears of higher inflation and a tumbling dollar, and the perception of mixed messages on interest rates from Ben Bernanke, the new Fed chairman.

                        “We are very uncomfortable about predicting financial crises, but we cannot help but see a certain similarity between the current economic and market conditions and the environment that led to the stock-market crash of October 1987,” said David Woo, head of global foreign-exchange strategy at Barclays Capital.

                        Apart from the similarities in economic conditions, during the run-up to the 1987 crash there was a sharp rise in share prices worldwide and weakness in bond markets, Woo pointed out. “Market patterns leading to the crash of 1987 resemble the markets today,” he said......

                        Continue reading Markets ‘are like 1987 crash’


                        • #27
                          Wall Street "fear gauge" jumps to near 2-year high


                          • #28
                            LONDON (AFX) - The OECD has warned that the eventual rebalancing of the US current account gap 'looks increasingly unavoidable' and will send shock waves across the globe, starting with a slump in the dollar's exchange rate.

                            The OECD said in its world economic outlook that the depreciation faced by the dollar could be 'of the order of one-third to one-half.'

                            The adjustment in the deficit would 'need to induce a sharp slowdown in US domestic demand and that this would have adverse spill-over effects on other economies both through the trade and asset revaluation channels,' it said.

                            The rebalancing may be accompanied by an increase in risk premiums and a reversal of private capital flows, it added.

                            Countries with current account surpluses have been accumulating dollar reserves and 'their willingness to hold dollar assets on their balance sheets may diminish,' the OECD warned.

                            It also cautioned that a protectionist response from the US may accelerate the dollar's falls.....

                            Continue reading..... OECD warns rebalancing of US deficit may drive dollar down sharply


                            • #29
                              How much longer can the dollar reign supreme?

                              Saddam Hussein stopped trading his oil for dollars before Iraq was invaded. Iran gets set to open a new oil bourse and futures market that will trade in euros, while Venezuela is said to be mulling over whether to follow suit.

                              Now Russia has joined the bandwagon. On May 10, President Vladimir Putin announced the creation of a Russian oil and gas bourse along with his intention to convert the ruble into a convertible currency that would be used for the trade.

                              Russia has recently swapped some of its dollar reserves for euros.

                              Together Iran, Venezuela and Russia corner some 25 percent of the export market in oil. If the three countries do away with the petrodollar, this could seriously buffet the US currency, forcing up interest rates, increasing the cost of imports into the US and contributing to an inflationary economy or a recession.

                              William Clark writing in the Energy Bulletin says, “What we are witnessing is a battle for oil currency supremacy. If Iran’s oil bourse becomes a successful alternative for international oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX)...”

                              At the same time, nations in this region have been exchanging percentages of their dollar reserves for other currencies.

                              In March, following the Dubai Ports World debacle, the UAE Central Bank said it was considering converting 10 percent of its dollar reserves to euros. Kuwait and Qatar have hinted that they might do the same.

                              The Commercial Bank of Syria has exchanged all its dollar devise for euros following a call from Washington urging US banks to cease acting as correspondents for Syrian financial institutions, ostensibly because of money-laundering concerns.

                              Last month, Sweden cut the dollar share of its $21 billion foreign reserves from 37 percent down to 20 percent, causing the dollar to tumble almost two percent in one week.

                              Sweden’s central bank said the switch to Euros was an effort to stabilize its foreign currency reserves and reduce volatile currencies.

                              Iran, Venezuela and Russia are hardly on warm terms with the US government and their proposed flight from dollars is thought to be partially if not wholly politically motivated. However, if the dollar value plunges as a result, then central banks around the world will be left with devalued reserves, and may have to start switching as well.

                              According to David Smith, economic editor for the Times, much of the dollar plunge is further “prompted by America’s $800 billion current-account deficit”. This deficit isn’t surprising when a whopping $280 billion has gone to fund the war in Iraq and the Bush administration is bent on its policy of tax cuts, which mostly benefit mega corporations and the wealthy.

                              Gulf nations, in particular the UAE and Qatar, are said to be suffering inflationary pressures due to the weakened dollar and there is discussion as to whether the dirham and the riyal should be released from their longtime hinge to the greenback.

                              Some economists are making the case for Gulf currencies to be linked to a basket of foreign currencies instead.

                              In May, Kuwait revalued its dollar-pegged dinar up one percent. According to the Kuwaiti finance minister, the revaluation was meant to offset the impact of the dollar’s slide on investments and inflation.

                              An article posted on the Emirates Bank website penned by its general manager believes there is a more important question up for discussion than the pegging of GCC currencies.

                              “A more important question therefore, may be whether oil exports should continue to be denominated in US dollars,” he writes. “This might well be something that OPEC or OEAPC can consider as to the pros and cons but is a matter that is best decided by a dialogue between the importers of oil and the exporters.”

                              Washington’s erratic and aggressive foreign policies have also contributed to the rise in oil prices. In the event of a military strike on Iran or attempts to interfere in the internal affairs of Venezuela, oil could top the $100 dollar mark with severe repercussions on the US and other first world economies.

                              Indeed, Iran’s President Mahmoud Ahmadinejad has threatened to stop the flow of oil through the Straits of Hormuz, while Venezuelan leader Hugo Chavez says he will quit selling oil to the US if threatened with invasion.

                              As we know when Washington sneezes the rest of the world catches a cold and this is certainly true when related to the weakness of the US currency. Last week London Blue Chips dived on news of the dollar’s dive coupled with concerns about inflation, while Asian stocks also felt the pinch.

                              Washington seems unconcerned and is sending out confusing signals. For instance, Beijing was badgered to unpeg the yuan from the dollar, and to revalue the currency so as to give US exports a competitive pricing edge, but since, US Treasury Secretary John Snow has stated that a strong dollar is in the nation’s interests.

                              In the meantime, China is buying up Washington’s debt in the form of T-bills; some $200 billion worth.

                              If Beijing decided to dump US T-bills perhaps in response to a row over Iran, or more likely Taiwan, the US could find itself in trouble.

                              The question is how far will the dollar dive? If it ever goes into freefall, we may be all in for a bumpy ride ahead.



                              • #30
                                ST. PETERSBURG — Russia has raised the share of euros in its growing central bank reserves, a top central banker said on Thursday, confirming Moscow’s cooling to the dollar as a dependable store of value.

                                The announcement by central bank First Deputy Chairman Alexei Ulyukayev came after Finance Minister Alexei Kudrin said Russia would keep its $71.5 billion budget stabilisation fund equally in euros and dollars, with a small share of sterling.

                                “The share of euros has increased,” Ulyukayev told Reuters in St Petersburg, without elaborating. Euros have accounted for 25-30 percent of the central bank’s reserves in the past.

                                Russia, the world’s No.2 oil exporter, has been piling up reserves at a breakneck pace as the central bank buys up petrodollars and prints rubles to defend a competitive exchange rate. Its gold and forex reserves rose to a record $236.7 billion in the week ending May 19, up 36 percent over the year to date.....

                                Continue reading..... Russia cools to dollar as it invests in stability


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