The Dollar Gets Bruised!
The dollar is sliding back into a rapid down spiral as the United States enters a new era of extremely-low interest rates and forex investors reassess the currency’s worth in a drawn-out recession.
A day after the Federal Reserve adopted a near zero-interest rate policy to stimulate the economy, the euro jumped as much as 4 cents against the dollar, the largest single-day move since the euro’s birth in 1999. Against the yen, the dollar tumbled to 87.14, the lowest level in 13 years. The dollar was also weaker against the pound and the Swiss franc.
The dollar — which on Wednesday rose as high as $1.44 against the euro from $1.39, before closing at $1.43 — had enjoyed a surprising rally since September, after Lehman Brothers’ collapse forced hedge funds and other big investors to liquidate assets and return money to the United States.
The Dollar continued to strengthen even after the government’s initial plan to shore up the financial system foundered, reaching as high as $1.2453 on Nov. 20. That counterintuitive shift seemed to highlight the dollar’s role as a safe haven store of value in times of crisis, despite the recession. Things are bruising and shifting towards exactly the opposite side right now.
But the dollar’s brief appeal in recent months mainly reflected a lack of better options. While much has been made recently of the euro as a new rival, the currency used by 15 European economies has weakened as recession struck the Continent. At the same time, Japan and other powerhouses in Asia quickly succumbed to a global deceleration.
And while some economists are predicting a mild recovery in the second half of 2009 as the Fed’s actions and a $700 billion stimulus plan promised by President-elect Barack Obama raises demand, unemployment could yet hit double-digits.
Taken together, the effect is one of greater downward pressure on the dollar — a dynamic that economists expect will continue for the foreseeable future. Currencies normally reflect the underlying fundamentals of an economy, and slow, controlled declines or gains allow businesses and investors to plan rationally for the future. But even by the standards of currency markets, the whipsaw nature of the dollar’s recent movements has come as a shock to many investors who expected the dollar to stabilize at a stronger level.
http://www.nytimes.com/2008/12/18/business/worldbusiness/18euro.html?ref=business
Post Details
Posted on December 18, 2008
at 9:59 am
Written / posted by: John
Filed under: Credit Crisis, Currency Trading, News