posted by 4x-news on Aug 4
In a recent report on the state of the Dollar, the International Monetary Fund declared that the Dollar’s unprecedented period of dominance will not likely come to an end anytime soon. This assertion seems to sharply contradict the 25% depreciation (in trade-weighted terms) that has taken place since 2002. Moreover, many countries have liberalized their exchange rate regimes, such that they no longer need to maintain large stores of Dollar assets. The report’s conclusion draws strength from another period of sustained Dollar depreciation (which took place from 1985 and 1991), which was likewise not able to shake the currency loose from its moorings. The IMF does concede that Central Banks will probably continue to diversify their reserves in Euros, especially as EU capital markets continue to be seen as a stable alternative to those in the US. In the end, however, they see the Greenback is King. The Daily Monitor reports:
“Notwithstanding the dramatic claims by some, there is no doubt that the dollar will retain the central role, even though it may gradually share the stage with other currencies to a greater degree than at present.”
posted by 4x-news on Jul 27
Over the last few months, the Dollar has bounced up and down against the Euro, but never breaking out of a range defined by $1.53 and $1.60. Analysts remain divided not only over if the Dollar will soon break-out, but also over whether its next major move will be upwards or downwards. The recent Dollar upswing has led some to speculate that more permanent strength is inevitable, but naysayers note that this rebound was a product of lowered oil prices, caused by global economic weakness, which is actually Dollar-negative. According to a recent poll, though, the bulls outnumber the bears; the consensus forecast for the Dollar 12 months from now is $1.50. The Wall Street Journal reports:
A Dow Jones Newswires survey last week of 23 analysts forecast the dollar would begin to recover on longer-term basis.
posted by 4x-news on Jul 27
Some analysts are surprised by the evident unwillingness of Central Bankers to intervene on behalf of the Dollar, especially considering how common such “rescue plans” are becoming in other corners of the financial markets. Over the last couple months, all of the momentum that was previously behind intervention has gradually evaporated, such that at the recent G8 Summit, currencies were hardly even discussed. This is somewhat ironic considering the Dollar has resumed its downward trend, and even touched an all-time low against the Euro. Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke aren’t willing to completely write off intervention, however. Both have commented explicitly that it is still being mooted as an option. Nonetheless, the current consensus among analysts is that unless the Dollar completely collapses, it’s not likely. The Associated Press reports:
“It would take a rare set of circumstances to get the U.S. right now to intervene,” said David Gilmore, a managing partner in Foreign Exchange Analytics in Essex, Conn.
posted by 4x-news on Jul 21
The major currencies were mixed on the Friday session amid a dearth of fresh economic news. However, the greenback took solace in a better-than-expected earnings report from Citigroup, propping the currency to above the 107-level against the yen to 107.08. Markets lauded Citigroup’s earnings report, which revealed a $2.5 billion loss in the second quarter, considerably better than consensus estimates for a loss of $3.67 billion.
The dollar also benefited from continued weakness in oil which declined for its fourth straight session to $128.91 per barrel amid easing geopolitical tensions. Iran’s foreign minister Mottaki said ¡°there may be talks on both the US founding an interest preserving bureau in Iran and direct flights between the two countries, raising the prospects for improved diplomatic relations and to quell recently heightened tensions.
Meanwhile, Minneapolis Fed President Stern delivered a hawkish tone, saying the Fed cannot delay tightening rates until financial markets are normal, and the economy is growing robustly. Stern added that the Fed’s actions will affect the economy in the future, not at the moment. Despite the current inflationary environment, the economic outlook remains bleak as expressed by Fed Chairman Bernanke earlier this week in which he delivered a downgraded assessment of the economy in contrast to the latest FOMC policy statement. Bernanke warned about significant downside risks to growth in conjunction with continued upside inflation risks. Our outlook remains unchanged and we continue to look for the Fed to remain on hold until December, at which point we anticipate a 25-basis point rate hike to 2.25%.
posted by 4x-news on Jun 12
For a while, the threat of intervention by the Central Bank of Japan was enough to hold down the Yen, despite a lack of supporting action. With regard to the Dollar, several high-ranking economic officials have recently made unsolicited comments implying that traders should think twice about shorting the Dollar. First, Ben Bernanke worried publicly about the effect of the sinking Dollar on inflation. Then, President Bush suggested that the Dollar was undervalued relative to economic fundamentals. Treasury Secretary Hank Paulson capped the effort by refusing to dismiss the possibility of coordinated intervention on behalf of the Dollar. While it has been eight years since the US last intervened in forex markets, it looks like investors are taking these threats seriously. The Wall Street Journal reports:
Traders seized on the comments as a signal that the administration — which has never intervened in the markets before — could do so if a dollar rout gets bad enough.
