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

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  • #76
    Samedi 14 avril 2007 -- L’euro a atteint un nouveau plus haut depuis janvier 2005 hier matin face au dollar, sur un marché attendant les premières déclarations en provenance de la réunion des pays du G7 à Washington. Vers 9 h GMT, l’euro s’échangeait 1,3521 dollar, contre 1,3480 dollar jeudi vers 21h GMT, et après un pic à 1,3534 dollar, un niveau pas atteint depuis le 3 janvier 2005.

    Le dollar était an baisse face au yen, à 118,38 yens. L’euro est soutenu par des perspectives économiques et monétaires favorables en zone euro, qui contrastent avec le ralentissement économique américain en cours. Le marché des changes a en outre confirmé jeudi par le biais du président de la Banque centrale européenne (BCE), Jean-Claude Trichet, que les taux d’intérêt européens atteindraient 4 % en juin, se rapprochant ainsi un peu plus des taux américains.

    Certains économistes attribuaient la faiblesse du dollar à un autre facteur, la montée du protectionnisme commercial américain visant la Chine. Les Etats-Unis ont déposé mardi dernier à l’Organisation mondiale du commerce (OMC) deux plaintes contre la Chine pour violation de la propriété intellectuelle et pour les obstacles posés par Pékin à la distribution de produits culturels.

    «Par l’accumulation de bons du Trésor et d’obligations américaines, la Chine finance presque 30 % du déficit budgétaire des Etats-Unis. Un changement d’attitude de la Chine à l’égard des actifs américains aurait des conséquences importantes», relevait David Woo, analyste chez Barclays Capital.

    Les investisseurs guettaient les premières déclarations en marge de la réunion des ministres des Finances du G7 (Allemagne, Canada, Etats-Unis, France, Italie, Japon, Royaume-Uni) qui s’est tenue hier à Washington. «Le consensus est que la réunion du G7 sera un non-événement pour le marché des changes», notaient néanmoins les analystes de la Deutsche Bank.

    Aucune mention explicite de la faiblesse du yen n’est par exemple prévue, alors que la devise nipponne a reculé hier matin à un nouveau plus bas historique contre l’euro, à 160,87 yens pour un euro.

    Comment


    • #77
      While the world press has focused on Iran's plans to move ahead with enriching uranium, Tehran continues to wage economic war against the U.S. dollar behind the scenes.

      Tehran has reached a decision to end all oil sales in dollars, according to statements by Iran's central bank governor, Ehrabhim Sheibany, in Kuala Lumpur at the end of last month.

      Zhuhai Zhenrong Trading, a Chinese state-run company that buys 240,000 barrels of oil per day from Iran, approximately 10 percent of Iran's 2.2 million barrels per day total output, has confirmed a shift to the euro for its Iranian oil purchases.

      About 60 percent of Iran's oil income is currently in non-dollar currencies, according to Hojjatollah Ghanimifard, who is responsible for international affairs for National Iranian Oil.

      Even Japanese refiners who buy some 550,000 barrels of oil a day from Iran have indicated their willingness to buy Iran's oil in yen.

      China, which buys approximately 12 percent of its crude oil supply from Iran, signed last year a long-term $100 billion deal with Iran to develop Iran's giant Yadvaran oil field. Estimates indicate China could draw 150,000 barrels of oil from the Yadvaran field for the next 25 years, assuring Iran's position as one of the major suppliers of oil to China for decades to come.

      One possibility is that China may begin paying Iran for oil in yuans.

      Meanwhile, China which now holds $1 trillion in foreign reserve holdings, announced March 20 it will no longer accumulate foreign exchange reserves.

      This is more bad news for the dollar, since approximately 70 percent of China's $1 trillion in foreign reserve holdings are held in U.S. dollar assets.

      About half of China's foreign exchange U.S. assets are invested in U.S. treasuries, which are vital to financing the continuing U.S. federal budget deficits.

      The recent push by Iran to demand payment for Iranian oil in currencies other than the dollar marks a move away from a previous announcement that Tehran planned to open an Iranian oil bourse in March 2006, designed to quote oil prices in the euro.

      Iran has yet to open an Iranian oil bourse, but demanding payment for Iranian oil in currencies other than the dollar is seen by many experts as a more direct attack on the dollar, especially if the Iranian decision backs a worldwide move away from using the dollar as the underpinning of world foreign exchange reserves.

      Iran's central bank governor Sheibany also confirmed Iran is cutting U.S. dollar reserves to less than 20 percent of its total foreign reserve currency holdings. Iran plans to manage its foreign reserve currencies from oil sales in a basket of 20 different currencies.

      The move by both Iran and China to hold fewer dollars in their foreign exchange reserve reflects a desire to diversify foreign exchange reserve portfolios amid concerns the dollar will continue to lose value versus the euro.

      The dollar has lost 9 percent of its value against the euro in the last year and is down 35 percent against the euro in the last five years.

      WND previously reported the late Iraqi dictator Saddam Hussein virtually signed his death warrant when he obtained the United Nations' permission to hold his Oil for Food foreign exchange reserves in the euro.

      Comment


      • #78
        NEW YORK (AP) -- The dollar hovered near a record low Monday against the euro after the 13-nation currency climbed to within 1 cent of its all-time high, while the pound backed down from a 14-year record.

        Currency traders now turn their eyes in the coming days to economic data that could further the pound's rally. Key inflation figures from the U.S. and Britain due out Tuesday will be followed Wednesday by the minutes from the Bank of England's last meeting on interest rates.

        The data could increase the risk of a British rate hike while worries about sluggish economic growth in the U.S. persist.

        Higher interest rates, used to combat inflation, can bolster a currency by making certain types of investments more attractive.

        Movement against the dollar could drive up the price of exports and tighten the pinch for travelers to Europe just as the tourist season approaches.

        Supported by crackling economic growth, falling jobless figures and interest rates much lower than those in Britain and the United States, the euro bought $1.3549 in late New York trading after climbing to $1.3576 - its highest point since January 2005 and near its December 2004 record of $1.3667.

        It traded at $1.3539 late Friday.

        Kristian Siggaard-Jensen, a foreign exchange strategist with Saxo Bank in Copenhagen, Denmark, said markets had factored in the increases, noting the steady guidance by the European Central Bank and the Bank of England.

        "People have been expecting this sort of volatility ... to pick up for some time," he said.

        The British pound rose early in the day to $1.9938, its highest point since September 1992, on unexpectedly higher prices for manufactured goods and news that the sizzling housing market was going strong.

        The pound last reached the $2 mark 14 years ago when the United Kingdom was kicked out of the European Exchange Rate Mechanism.

        Analysts said they expected the currency to cross the $2 mark this week. It later fell back to $1.9900, compared with $1.9870 Friday in New York.

        The dollar rose to 119.79 Japanese yen from 119.12 yen late Friday after officials from the Group of Seven wealthiest nations opted not to press Japan to raise its interest rates to buoy its currency at a weekend meeting.

        "The message from G-7 is that the world's a happy place and everybody go out and invest," David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut, said of last weekend's meeting of G-7 officials in Washington.

        The euro has charged higher against the dollar in recent months as the region's economy improves and jobless figures decline. The high level has drawn some criticism in the past because leads to higher export prices. Germany, Europe's largest economy, is highly dependent on exports.

        But unlike previous highs, the clamor of politicians has been decidedly muted given the strong export growth, the strength of European economies and the belief that a higher euro won't hurt sales abroad right now.

        "The tenor of European rhetoric at the G-7 was surprising, and on the face of it, positive, as it's always good to see a lack of equivocation on the part of central bankers," Siggaard-Jensen said.

        "There was a clear sense that while a strong euro is bad for exports, its a great inflation-fighter for the euro zone," he said. "That's especially true in an environment of high oil prices, which are dollar-denominated. All in all, surprising and refreshing rhetoric from the Europeans."

        Italian Prime Minister Romano Prodi told reporters in Tokyo early Monday that the euro had risen too high, but tempered that by saying the growth had helped Italian and euro-zone business and industrial growth.

        "We have already reached extremely elevated levels," Prodi told the Italian news agency ANSA. He added that the euro's strength had jolted big industry out of a period of laziness and promoted a decisive "increase in productivity."

        The ECB held its benchmark rate steady at 3.75 percent last week but set the scene for an increase to 4 percent in June. That would be aimed at countering threats of inflation in the euro zone, a bloc of 317 million people that accounts for more than 15 percent of the world's global domestic product.

        "The fundamentals are in line to go higher and the politicians seem to be welcoming that," Siggaard-Jensen said. "The investors are more confident, too, and realize 'we can take euro/dollar above the all-time highs without getting too much (government) intervention."

        Worries about the U.S. trade and budget deficits were a key factor in the euro's surge to its all-time high in 2004, but those worries were submerged over the past two years by the Federal Reserve's campaign of interest rate increases. The Fed has left rates unchanged over recent months, with markets watching U.S. data closely for pointers as to the Fed's course.

        In other trading, the dollar bought 1.2134 Swiss francs, slipping from 1.2139 late Friday, and 1.1312 Canadian dollars, down from 1.1369.

        Comment


        • #79
          NEW YORK (Reuters) - The dollar dropped to a record low against the euro on Friday after the weakest reading of U.S. economic growth in four years suggested the economy could be at danger of falling behind the rest of the world.

          For the first time since its launch in January 1999, the euro rose above $1.3680 and was on track for its largest monthly gain since November.

          Against the yen, the euro zone currency climbed to an all-time high above 163 yen, as solid expectations for economic growth in Europe contrasted with the mediocre pace of expansion in the United States and Japan.

          Growth in U.S. gross domestic product was below its long-term trend for the fourth consecutive quarter in the first three months of the year, while a measure of inflation posted its largest rise in 16 years.

          The data did little to shake the view among investors that the Federal Reserve will likely have to cut U.S. interest rates at least once this year, compared with forecasts for higher rates in the euro zone and Britain, among others, thereby reducing the relative appeal of U.S. fixed-income assets.

          "The market has been focused on real yield differentials and not inflation," said Steven Englander, head of G10 currency strategy with Merrill Lynch in New York. "You just can't find evidence that higher inflation expectations are good for the dollar."

          The euro climbed to a record high of $1.3683, according to electronic trading platform EBS. By mid-afternoon, it backtracked slightly to $1.3650, but many analysts and money managers said the falling dollar is part of a long-term trend that is not about to end.

          Record high against the yen

          The euro also rose to a record high of 163.25 yen in the wake of the Bank of Japan's decision to keep interest rates on hold at 0.5% - the lowest in the developed world - and to cut their outlook on inflation.

          The dollar was largely unchanged against the yen at 119.63 yen while sterling rose 0.4% from late Thursday to $1.9985 The pound last week jumped to a 26-year high of $2.0134.

          One of the biggest movers on the day was the Canadian dollar, which rose to a seven-month high against its U.S. counterpart. The U.S. dollar fell 0.6% to C$1.1155

          Strong in Asia and Europe

          The weakening dollar in the face of economic strength in Europe and Asia independent of U.S. demand unearthed the greenback's long-term enemies - diversification of dollar-denominated central bank and portfolio holdings and concerns about financing the U.S. current account deficit.

          "The U.S. is still trying to fund a $200 billion-plus quarterly current account deficit but the new twist is that growth has moved to a sub-2% pace," said Brian Garvey, senior currency strategist with State Street Global Markets in Boston.

          "This could serve as a wake-up call to foreigners who have recently shown an increasing appetite for U.S. equities and U.S. corporate bonds," he said in a research note.

          U.S. financial markets need to attract $3 billion every working day to cover the outflow of money due to the world's largest economy's trade deficit.

          Next week, investors will have a steady flow of U.S. economic data to measure the dollar against. In particular, investors will likely focus on the March core PCE price index - the Fed's favored gauge of inflation - due on Monday and the monthly payrolls report due on Friday.

          Significantly lower-than-expected jobs growth could seal the near-term fate of the struggling U.S. dollar.

          "The new kid on the block is the potential for a weak labor market," said a money manager with a large currency overlay manager in London. "There's more dollar weakness to go."

          Comment


          • #80
            NEW YORK (Reuters) - The last time the U.S. dollar slid to a record low against the euro it quickly recovered, but this time may be different.

            The dollar slid to a new record low against the euro on Friday, with the euro quoted above $1.3680, the highest since the currency's launch in 1999.

            When the euro climbed above $1.36 in 2004, it limped above that level for five days, and then embarked on a year-long decline.

            But unlike late 2004, when the Federal Reserve was in the early stages of a two-year rate rising cycle which provided some support for the dollar against the euro, U.S. economic growth is now slowing and the Fed may even cut interest rates later this year.

            At the same time, economies in the Europe and Asia seem to be weathering the U.S. slowdown well, suggesting that interest rates in those regions may continue to move higher, drawing yield-hungry investors away from the dollar.

            "I think we're going to see $1.38 (euro/dollar) without too much trouble here," said Joseph Trevisani, chief market analyst at FX Solutions, an online currency dealing platform based in Saddle River, New Jersey.

            The immediate trigger for the dollar's fall on Friday was a report showing that the U.S. economy grew at its most sluggish pace in four years during the first quarter.

            But the writing had been on the wall for months now, as the dollar's appeal to yield-hungry investors was on the wane.

            Two-year U.S. Treasury notes are yielding just half a percentage point more than government debt of the same maturity in the euro-zone, the lowest interest rate differential since late 2004, and well below a peak of around 1.8 percentage points in the middle of 2006.

            By contrast back in late 2004 differentials were actually widening in the dollar's favor as yields on euro-zone debt were falling on worries that the strong euro would strangle the European economy.

            In 2004 Jean-Claude Trichet, head of the European Central Bank, was also warning that the euro's rise was "brutal" and "unwelcome", a signal that it could be risky to chase the currency higher.

            In contrast euro zone officials appeared almost nonchalant on Friday. The Eurogroup's Jean-Claude Juncker said he was not concerned about the level of the euro, which has also hit repeated record highs against the yen in recent weeks.

            And the contrast with 2004 does not end there. This time around the market appears to have greeted the euro's spike to a fresh record high with a big yawn.

            One-month implied volatilities on euro options were trading around their lowest level in 5 months on Friday.

            At just above 5 percent, volatility is little more than half the level that is was in late 2004.

            Many analysts reckon that the dollar's slow but steady grind lower is set to continue. Slowing growth and the prospect of lower interest rates is likely to rekindle concerns about the United States' ability to finance its gaping current account deficit, which requires $2 billion a day to plug.

            Over the coming three to six months, the euro looks on course to rally to $1.40 or higher, said Nick Bennenbroek, head of currency strategy in New York for Wells Fargo.

            Stubbornly high readings on inflation are another reason to bet against the dollar, some investors reckon.

            "Growth is slowing and inflation is rising. The Fed cannot raise rates because growth is slowing ... that's negative for the dollar," says Bill Lipschutz, portfolio manager at Hathersage Capital Management, a currency hedge fund.

            The implicit price deflator, one gauge of inflationary pressures in Friday's GDP report, jumped at a 4.0 percent rate in the first quarter, the biggest jump since early 1991.

            This week the dollar fell to its lowest level ever against a basket of major currencies tracked by the Fed since 1973.

            However the dollar's decline has been unevenly distributed. Since a peak in mid October it has fallen 9.5 percent against the Australian dollar, 8.0 percent versus the euro, 7.0 percent against sterling, but is virtually flat against the yen.

            Some longer-term investors say the dollar's sharp decline is starting to make it look attractive again against European currencies like the euro and sterling.

            "Let's face it, the dollar has had a good sell-off, but in terms of valuations it is now looking to be one of the cheaper currencies out there," says Roddy Macpherson, investment director of global strategy at the UK-based Scottish Widows' Investment Partnership, which oversees $200 billion of funds.

            Macpherson says he reckons the dollar is around 20 percent undervalued against the British pound and the euro.

            But most shorter-term investors don't have the stomach to bet on a dollar rebound just yet, especially ahead of some blockbuster U.S. data releases next week, including readings on inflation and a monthly jobs report.

            More weak data "would effectively give a "green light" to continue selling USDs and quite likely the catalyst to break above the 1.3700 threshold in the EUR/USD," said Michael Woolfolk, senior currency strategist at Bank of New York.

            Comment


            • #81
              NEW YORK, July 10, 2007: The dollar fell to a record low against the euro and hit a 26-year bottom against the British pound Tuesday before recovering slightly, as investors fretted about a possible fallout from weakness in the U.S. subprime mortgage market.

              The dollar also slumped nearly 1 percent against the yen, as risk-averse investors cut back on investment transactions funded by borrowing in the Japanese currency.

              "The dollar is a basket case," said Peter Schiff, the president of Euro Pacific Capital. "We are going to pay the piper for years of having the underlying fundamentals of our economy disintegrate beneath our feet."

              The market volatility came just before the Federal Reserve chairman, Ben Bernanke, said that Americans had less erratic expectations about inflation than they used to, but that they were still likely to let short-term events shape their long-term perceptions about price increases.

              Bernanke's remarks reflected the Fed's position that inflation remained a threat to the economy and suggested that an interest rate cut was not coming anytime soon.

              "Although inflation expectations seem much better anchored today than they were a few decades ago, they appear to remain imperfectly anchored," Bernanke said in a speech to an economics conference in Cambridge, Massachusetts.

              The idea that the public's perception about future inflation helps determine price increases is an important one for the Fed and Bernanke. He and other Fed officials have said that to achieve a slower rate of inflation, Americans need to be relatively sure about the direction of prices in the future.

              Wall Street nudged down after Bernanke's remarks, closing lower for the day.

              For the last year, the Fed has left its benchmark short-term interest rate unchanged even though many economists and investors had bet that slower growth would prompt it to cut rates by now. Late last month when it issued its most recent decision, the Fed signaled that a rate cut was still some time away. In a statement accompanying the decision, the Fed said that while inflation had improved modestly, "a sustained moderation in inflation pressures has yet to be convincingly demonstrated."

              Given the state of the U.S. economy, Schiff of Euro Pacific Capital said, the dollar could continue to fall in the coming years against the euro to $2.50 or even $3.

              The 13-nation European currency hit a new high of $1.3740 before falling back to $1.3719 at 4 p.m., still above the previous high of $1.3682 it reached on April 27. The euro bought $1.3623 in New York late Monday.

              A higher euro makes goods from the euro region more expensive for customers abroad, or cuts into manufacturers' profits if they try to keep the U.S. dollar price of products constant.

              Along with the rise in the British pound, which has been trading above $2 amid robust growth in the British economy, the stronger euro also makes visits to much of Europe more expensive for travelers from dollar-denominated countries, and makes shopping trips to the United States more appealing to Europeans. The pound touched $2.0275 against the dollar Tuesday, its highest in 26 years.

              Analysts said the dollar had been further undermined by a narrowing interest-rate advantage over other currencies. Benchmark U.S. rates have held at 5.25 percent for more than a year, reducing the dollar's appeal to global investors.

              That contrasts with the European Central Bank, which has been raising rates regularly and is expected to do so again to 4.25 percent in September, and the Bank of England, which last week increased its benchmark rate to 5.75 percent, a six-year high.

              The euro rose from a low of 82 U.S. cents in October 2000 to its previous high of $1.3682 on concerns over the enormous U.S. trade and budget deficits. But a string of rate increases by the Fed had helped cushion the decline of the dollar.

              The euro began its most recent run against the dollar in June after the European Central Bank lifted its benchmark rate to 4 percent. Further increases would be aimed at countering threats of inflation in the euro region, a bloc of 318 million people that accounts for more than 15 percent of the world's GDP.

              On Tuesday the European Union gave Cyprus and Malta final approval to start using the euro next year, raising to 15 the number of nations that will be using the euro when the two Mediterranean nations join the currency zone on January 1.

              Comment


              • #82
                Heavy losses sweep world markets

                London's FTSE 100 fell below the 6,000 level on Thursday as uncertainty over the impact of losses in the US sub-prime lending market persisted.

                The index of leading UK shares lost 2.1% to 5983.3 points by 0920BST on the back of heavy falls in Asia and further declines on Wall Street.

                Concern about the state of world credit markets saw the US Dow Jones index close below 13,000 on Wednesday.

                Japan's Nikkei index lost 2%, with shares down 3.7% in Hong Kong.

                France's Cac-40 index was 2.2% lower while Germany's Dax-30 opened down 1.8%

                The FTSE has not fallen below 6,000 during a trading session since March this year. It last closed below 6,000 in October 2006.

                In the US, the Dow ended 1.3% lower at 12,861.5 points, the first time it has closed below 13,000 since 24 April.

                Unknown scale

                The recent financial market volatility has been triggered by the US sub-prime mortgage sector, which offers higher-risk loans to people with a poor credit history.

                As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.

                This has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - and triggered fears of a wider financial crisis.

                While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.

                Central banks have been trying to restore confidence and avoid a credit squeeze, with the Bank of Japan announcing on Thursday that it would inject a further 400bn yen ($3.4bn) into its banking system.

                However, such moves, along with comments by US Treasury Secretary Henry Paulson that the economy was strong enough to withstand the turmoil, have done little to appease investors.

                In Japan, the Nikkei index closed down 2% at 16,148.49 and elsewhere in Asia, Singapore lost almost 3.7% and Australia's benchmark S&P/ASX 200 lost 1.7% - having at one point suffered its biggest one-day percentage drop in more than seven years.

                And in Mumbai, India's Sensex index lost 3.7% of its value.

                Credit problems

                Australian home loan firm RAMS saw its shares sink 36% after it said it had failed to refinance 6.17bn Australian dollars ($5bn; £2.5bn) in debt after the credit crunch spurred by the crisis in the US housing market.

                The problems also came to the fore when Merrill Lynch told its clients to sell any shares they own in the country's largest mortgage lender, Countrywide Financial.

                It warned that Countrywide could face bankruptcy if the availability of credit in the market got any worse - and there were market rumours that the lender had failed to raise some money it needed.

                "The problems in the sub-prime mortgage market will linger on for a while," said Bart Ingels, an analyst at Fortis Bank, in Brussels.

                "Some days it was a little bit better but then negative news came to the fore, and it will go on like that for a while."

                Worries about a slowdown in US consumption were not helped by results from the department store Macy's, which blamed the "difficult" climate for a 77% fall in its quarterly profits.

                The US Federal Reserve made another $7bn (£3.5bn) of reserves available to the banking system on Wednesday. The Fed has injected $71bn into the system since 9 August.

                BBC NEWS | Business | Heavy losses sweep world markets

                Comment


                • #83
                  The present turmoil in the global financial sytem clearly shows that it is resting on an unbalanced equilibrium.

                  A little jerk has the potential of starting a collapse.

                  I hope the economists of the Govts will succeed in stopping the slide.

                  Comment


                  • #84
                    November 7, 2007 -- The pound climbed to $2.10 for the first time since 1981 this morning, boosted by speculation that China was preparing to shift its foreign reserves out of dollars.

                    By 10.30am, one pound was worth $2.1053. The dollar, which has been weakening for several weeks, also hit a new all-time low against the euro of $1.4703.

                    Analysts said today's falls had been sparked by comments made by Cheng Siwei, vice chairman of China's National People's Congress. He told a Beijing conference on Tuesday that China would "favour stronger currencies over weaker ones, and readjust accordingly".

                    A vice director of China's central bank, Xu Jian, was also quoted as telling the conference that the dollar was "losing its status as the world currency".

                    Thanks to China's booming exports, the country now holds the largest reserves of foreign currency in the world. The People's Bank of China reported last month that at the end of September, China's foreign reserves were worth $1.434 trillion.

                    Adam Cole of RBC Capital Markets said this morning that the comments from the two Chinese officials had "clearly been the catalyst" for the latest dollar weakness.

                    "However, it is more due to negative dollar sentiment generally," Mr Cole said.

                    The slowdown in the American economy, the sub-prime mortgage crisis and the ongoing credit crunch have all combined to weaken the US economy. Back in January, one pound was worth around $1.96.

                    Comment


                    • #85
                      FRANKFURT, November 7, 2007: In financial market jargon, a "flight to quality" when times are uncertain used to be synonymous with "buy dollars." Not anymore.

                      Currency traders gave the U.S. dollar a thorough pounding Wednesday and pushed the value of the euro to $1.47, the highest on record. The Swiss franc rose to a 12-year high against the dollar, and the pound climbed to the value it reached 26 years ago.

                      Other assets looked alluring to traders worldwide. Gold rose to around $848, almost reaching the highs it achieved in 1980, the tail end of its last big rally. And crude oil, still the world's chief source of energy, perched on the cusp of $100 a barrel.

                      In short, markets appeared firmly in the grip of a mood that seemed to scream for any investment other than the dollar, a reflection of a broad lack of confidence in a U.S. economy that could not seem to put the subprime mortgage crisis behind it. Unusually, powerful new Chinese investors appeared to endorse the idea that the U.S. currency was bound to fade as a result.

                      The European Central Bank seems set to stand by the strong euro when it meets Thursday to set interest rates - offering a credible alternative to a U.S. currency that now seems less indispensable than it has in some time.

                      "The fluffy issues of credibility and reputation cannot be captured by economic analysis very well," said Stephen Jen, global head of currency research at Morgan Stanley in London. "But they matter a lot."

                      An unprecedented public badmouthing by the Chinese government - a colossal dollar investor by virtue of its $1.43 trillion in currency reserves, most of which are presumed to be denominated in dollars - helped drive the U.S. currency lower Wednesday.

                      "In terms of the structure of our foreign exchange reserves, we should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies," Cheng Siwei, vice chairman of the National People's Congress, said in Beijing on Wednesday, Reuters reported.

                      The statement highlighted the new power of state-controlled pools of cash to drive buying and selling. Russia and several Middle Eastern countries, flush from oil and natural gas sales, have similar sovereign wealth funds - and their appetite for assets not denominated in dollars appeared to be growing by the day.

                      It is probably an exaggeration, many analysts believe, to say that the dollar is losing its status as the world's leading currency, or that central banks like the one in China will actively dump dollars.

                      The historical record offers only one example of a currency falling completely off the pedestal, but World War I, and not peacetime capital flows, closed out the era dominated by the British pound early in the last century. What is going on now in financial markets appears to be more subtle, a broadly based structural shift out of dollars and into other assets.

                      And even the day-to-day fluctuations have to be viewed with skepticism, some analysts cautioned. In the late 1970s, the dollar suffered a crisis of confidence as inflation took off in the United States, and only the U.S. Federal Reserve's tough monetary policy restored its shine.

                      "It's not always been the case that the dollar was a pure safe haven," said Simon Derrick, chief currency strategist at Bank of New York Mellon in London. "It attained that status in the early 1980s."

                      Then there is the problem of faddish market psychology. Signs that the United States can emerge from the subprime crisis without a full-blown recession may yet turn the tide, making the current bout of dollar weakness seem cyclical rather than structural.

                      "I'm not yet ready to say that the sky is falling, so I'm firmly in the cyclical camp," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

                      Still, several important factors besides the emergence of sovereign wealth funds are weighing on the dollar. One is that big investors from the United States - ignoring the traditional "home bias" - are pulling their money out of dollar-denominated assets.

                      Jen has calculated that U.S. money managers are some of the largest "dollar diversifiers," pulling about $400 billion out of mutual funds in the United States and into international assets. Allocations into international assets have risen from 15 percent then to 22.5 percent now, he wrote in a recent report.

                      Part of that reflects plunging confidence that the subprime crisis, which was initially limited to low-quality mortgages but is now vexing much of the financial system and could yet spill over into other industries. The turmoil has now claimed two high-profile chief executives - at Merrill Lynch and Citigroup - after multibillion-dollar write-offs for bad investments.

                      "We are experiencing among our clients an awakening that the United States is in big trouble," said Erik Nielsen, chief Europe economist at Goldman Sachs. "It is not just the mortgage market."

                      As the dollar turns tarnished, the euro is coming into its own.

                      Created on January 1, 1999, the common European currency failed to convince a lot of investors early on and suffered its own very low values early in the decade. Since then the European Central Bank, whose mandate, unlike the Fed's, puts keeping the currency strong as the primary goal, has won over skeptics, Jen and other analysts said.

                      "The euro as an alternative to the dollar is a story that has become much easier to digest," said Jim McCormick in London, head of currency strategy for Lehman Brothers International. "The last two years in particular have witnessed a sea change around the currency."

                      The dollar is the lowest it has been against what economists call the "synthetic euro" - an artificial statistical creation based on values of the national currencies it replaced - since 1992.

                      The European Central Bank seems set to confirm its preference for a strong euro on Thursday, when it is expected to hint at future interest rate increases even as it waits out the turmoil in the financial markets.

                      Raising its benchmark rate, now at 4 percent, would heighten the allure of euro-denominated assets.

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                      • #86

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                        • #87

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                          • #88
                            Strangely, the dollar-slide has increased the job opportunities in the US.

                            Coz foreign exporters to the US are getting less and less local currency
                            and hence are cutting their exports to the US,
                            local products have become competetive.

                            I suspect that the FED is deliberately allowing the dollar to depreciate
                            to some extent vis-a-vis the world currencies,
                            to encourage exports resulting in more production and so more jobs.

                            Note the FED is cutting rates.

                            High oil prices, from US $ 84 to 94 dollars is the effect of depreciating dollar.
                            The $ has depreciated as much as 15 % wrt to INR in the last one year.

                            Most of the oil dollars are used to buy blue chip stocks globally.
                            Stock indices have soared worldwide to life-time highs.

                            So also the price of oil & gold.

                            It is a bonanza for oil-producing & OPEC countries.

                            Thus there is a vested interest in keeping the geo-political turbulance active.

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                            • #89
                              "The dollar hit new record lows against the euro, the Swiss franc and a basket of currencies on Thursday amid a growing belief that the U.S. Federal Reserve will cut interest rates again next month. Adding to downward pressure on the dollar was a recovery in equity markets and a slight pick up in risk appetite which made investors more willing to put on riskier trades in high-yielding or emerging market currencies."

                              Dollar sets fresh record lows vs euro, Swiss franc

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                              • #90
                                "Brazil and Argentina could cease conducting bilateral financial transactions in US dollars next year and start using their own currencies, the real and the peso, Brazilian Finance Minister Guido Mantega said."

                                Brazil, Argentina may drop dollar in bilateral transactions - minister

                                "The U.S. Dollar Index may fall at least 1.6 percent by year-end to a level that equates to $1.506 per euro, as the Federal Reserve will lower borrowing costs to support the economy, according to Bank of America Corp. The Dollar Index, which gauges the value of the dollar against six major currencies, including the euro and yen, may reach the "final'' technical support level of 73.92, the bank said in a research note today. The index, traded on ICE Futures U.S. in New York, has declined 10 percent this year and touched 74.95 today, the lowest since its creation in 1973. "The overall outlook for the dollar remains bleak," Kamal Sharma, a currency strategist at Bank of America in London, said in an interview. "If we don't hold onto that level, there's limited chance for a rebound in the dollar. That adds a technical argument to the fundamental argument for remaining bearish on the dollar.''

                                Bloomberg.com: Currencies

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