EMERGENCY: DOLLAR
November 6th, 2007Europe might try to stop it here. EUR/USD over 145 is an emergency situation for them. I don’t know what their plan is, but expect them to try it soon. USDX is a hair over 76. They’ve got to do something right here.
Via: Bloomberg:
The dollar fell to a record low against the euro on speculation financial-company losses from subprime-mortgage defaults will grow, prompting the Federal Reserve to cut interest rates a third time this year.
The U.S. currency declined versus all 16 of the most- actively traded currencies except the yen after Fed Governor Randall Kroszner said conditions for subprime-mortgage borrowers may worsen. It dropped the most against the South African rand, falling 1.2 percent.
“The dollar will continue to weaken because the rate differentials move against the dollar,” said Marcus Hettinger, a currency strategist at Credit Suisse Group in Zurich. “The subprime issue is negative because it increases the probability that the Fed will ease again.”
The U.S. currency dropped to an all-time low of $1.4556 per euro before trading at $1.4547 as of 7:03 a.m. in New York, from $1.4469 late yesterday. The dollar may fall to $1.46 in the coming days, Hettinger said.
Against Australia’s currency, the dollar declined to as low as 92.66 U.S. cents, compared with 92.07 late yesterday in New York. The U.S. currency fell to 92.59 cents against its Canadian counterpart, from 93.33 cents yesterday, and to 6.5013 rand, from 6.5900. It was at $2.0878 against the pound, near a 26-year low of $2.0897. The dollar traded at 114.72 yen, from 114.55 yen.
Dollar Assets
“Conditions for subprime borrowers have the potential to get worse before they get better,” Kroszner, the Fed’s chief liason officer with the banking industry, said in remarks delivered to conferences in Arlington, Virginia and Washington yesterday. Bank of England Governor Mervyn King said today in a BBC Radio 4 interview it may take months before commercial banks publish their full losses from the U.S. subprime-mortgage slump.
“The rolling credit crisis and lack of confidence in the U.S. financial sector is heightening fears for the broader U.S. economy,” said Greg Gibbs, a currency strategist in Sydney at ABN Amro Holding NV, the biggest Dutch bank. “The broader outlook for the dollar still looks very challenged.”
What do you propose they do? Coordinated intervention would have only a fleeting effect. My own view is that the greenback is near a short to intermediate term low in any case. This is based on technicals and anecdotal information such as Giselle Bundchen’s demand to be paid in Euros. These sorts are always to be faded. All that is needed now is for Time or Newsweek to run a cover story on the dollar’s demise.
A global recession/depression is slowly picking up steam, and the U.S. as the weakest economy in the west is the first nation to take the sort of steps nation’s take when they begin to catch cold, namely they administer lower rates. As the exporting of our deflation picks up steam, as it must, competitive currency devaluations will likewise occur.
A lot of people thought that the Canadian Dollar reaching parity with the US Dollar was a benchmark, but now even the Australian Dollar is starting to reach the same parity.