The dollar could slide still further, in spite of hitting an all-time low against the euro last week

[dahunan]

Dollar expected to fall amid China's rumoured selling
By Steve Johnson in London and Andrew Balls in Washington
Published: November 7 2004 19:43 | Last updated: November 7 2004 19:43

The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said.


The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of "benign neglect" of the dollar.

Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October.

"If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms.

The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases.

Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate.

However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets.

India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.
http://news.ft.com/cms/s/25797...a595-00000e2511c8.html

 

[Forsythe]

I really hope it wont take long for the euro to become the international trade coin. The dollar low is bad to european countries, as we get the same amount of dollars for our goods, but they aren't worth as much in euro's. Now if only they would make the trade coin euro's.

 

[dahunan]

Originally posted by: Forsythe
I really hope it wont take long for the euro to become the international trade coin. The dollar low is bad to european countries, as we get the same amount of dollars for our goods, but they aren't worth as much in euro's. Now if only they would make the trade coin euro's.

Speak for yourself

We need more wars and hopefully a Giant Depression and some horrible plagues

 

[charrison]

more exports to the EU and more domestic production?

 

[GrGr]

Originally posted by: dahunan

Originally posted by: Forsythe
I really hope it wont take long for the euro to become the international trade coin. The dollar low is bad to european countries, as we get the same amount of dollars for our goods, but they aren't worth as much in euro's. Now if only they would make the trade coin euro's.

Speak for yourself

We need more wars and hopefully a Giant Depression and some horrible plagues

:Q Do you want some Famine with that?

 

[glenn1]

Interesting turn of events, but let's see if the trend continues. Hopefully not, since if it does we've seen this show before and it won't end pretty.

If it does it will mirror what happened in the mid-80s. The dollar declined in value from about 140 vs. a mixed basket of currencies to about 85 (a 40% decline). The stock market indexes rallied the entire time, approximately doubling. At least until Black Monday. For those who weren't alive at the time or don't remember, Black Monday was when the Dow dropped by about 25% (508 points) in a single day. Of course there are trading curbs in place now (trading gets stopped for increasing amounts of time if the market goes down a significant amount, and trading is halted for the day if the drop reaches 10%), but that just means a large drop could be stretched out over several trading sessions.

BTW, the trade deficit margin in the 80s which caused the event sequence above, was running about 3 and a half percent. 2Q this year it was almost six percent.

 

[Darkhawk28]

Originally posted by: glenn1
Interesting turn of events, but let's see if the trend continues. Hopefully not, since if it does we've seen this show before and it won't end pretty.

If it does it will mirror what happened in the mid-80s. The dollar declined in value from about 140 vs. a mixed basket of currencies to about 85 (a 40% decline). The stock market indexes rallied the entire time, approximately doubling. At least until Black Monday. For those who weren't alive at the time or don't remember, Black Monday was when the Dow dropped by about 25% (508 points) in a single day. Of course there are trading curbs in place now (trading gets stopped for increasing amounts of time if the market goes down a significant amount, and trading is halted for the day if the drop reaches 10%), but that just means a large drop could be stretched out over several trading sessions.

BTW, the trade deficit margin in the 80s which caused the event sequence above, was running about 3 and a half percent. 2Q this year it was almost six percent.

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

 

[TastesLikeChicken]

Originally posted by: Forsythe
I really hope it wont take long for the euro to become the international trade coin. The dollar low is bad to european countries, as we get the same amount of dollars for our goods, but they aren't worth as much in euro's. Now if only they would make the trade coin euro's.

Disaster has already struck!

Castro is taking Cuba off the dollar standard effective at midnight tonight.

http://www.cubanet.org/CNews/y04/nov04/04e6.htm

Castro gouges his people

Palm Beach Post Editorial, November 03, 2004.

Old tyrants don't die soon enough. They just fall, hurt themselves and then inflict more pain on their people.

Fidel Castro broke an arm and leg last month in a much-publicized tumble. He recovered quickly enough to take it out on the Cuban people, announcing a new policy that makes it illegal to use U.S. dollars and requires a 10 percent charge to convert them into pesos. Rising oil prices and tighter U.S. sanctions have worsened Cuba's chronic economic problems. Unable to provide real solutions, Castro turns to retaliatory measures. As always, the people take the real fall.

Cuban-Americans, many of them in Florida, send about $1 billion each year to relatives and friends on the island, making remittances the strongest segment of an economy that has remained in perpetual crisis since Castro took power. The new policy will take money out of the pockets of Cubans and add more hardship to lives that already are hard enough. Castro legalized the dollar a decade ago, and Cubans' buying power rose. Items that once were unattainable - appliances, quality clothing and food, in particular - found their way into households of people who were neither elite nor tied to Castro's political machinery. In real and symbolic terms, the dollar has meant freedom for many Cubans.

The Bush administration's decision to impose more trade and travel restrictions on Cuba has already depressed standards of living, and the ban on the dollar will make matters worse. At long last, Castro and the U.S. government appear to have found common ground in their determination to deny Cubans a better life. Instead of a progressive approach that would empower the people and prepare them for what comes after Castro, President Bush embraces Cold War tactics. Oppression from the tyrant is expected. But from the U.S. government?

 

[glenn1]

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

 

[charrison]

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

 

[ElFenix]

Originally posted by: charrison

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

if traders think the dollar is going to keep falling then that will decrease whatever return they get, so they'll want to pull out of dollar investments. so it keeps happening. nice vicious cycle.

 

[charrison]

Originally posted by: ElFenix

Originally posted by: charrison

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

if traders think the dollar is going to keep falling then that will decrease whatever return they get, so they'll want to pull out of dollar investments. so it keeps happening. nice vicious cycle.

So is causing them to think there is going to be less of a return?

 

[glugglug]

Originally posted by: charrison
So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

Here's why: http://money.cnn.com/2004/10/1...conomy/snow_debt.reut/

Thank your fearless liar.

 

[GrGr]

Originally posted by: charrison

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

The Bush administration has pursued a weaker dollar policy almost from day one.

 

[charrison]

Originally posted by: glugglug

Originally posted by: charrison
So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

Here's why: http://money.cnn.com/2004/10/1...conomy/snow_debt.reut/

Thank your fearless liar.

True, but this is nothing new. We are not anywhere near historitical highs on debt/gdp ratio.

 

[rahvin]

Originally posted by: GrGr

Originally posted by: charrison

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

The Bush administration has pursued a weaker dollar policy almost from day one.

As well he should. The dollar overinflated during the 90's, that overinflation has nearly killed what remained of our manufacturing sector. The dollar needs to fall to the ratio it was at with europe pre-clinton. It should probably even fall further than that given our current budget deficet, make no mistake a declining dollar is GOOD for our manufacturing sector. I just wish China would unpin the Yuan from the dollar and allow the gap to decrease.

 

[alphatarget1]

Originally posted by: charrison
more exports to the EU and more domestic production?

yeah isn't a weak dollar good for our economy in many aspects?

I am somewhat worried about countries starting to trade with Euro instead of the dollar, but Europe still has a lot of problems to work out in spite of the fact that everyone thinks europe is perfect.

 

[0marTheZealot]

The dollar isn't backed by anything except by oil. If/When OPEC decides to sell oil in euros, the dollar will fall just as quickly as the Mark in the Weimar Republic.

 

[b0mbrman]

Originally posted by: charrison

Originally posted by: glenn1

I remember those days... they were very scary indeed. You're right, effects will not be felt for a while, but it WILL happen and happen hard.

Well, no telling if events will play out the same way, as the standard disclaimer goes "past performance is not indicative of future results," but IMHO what's going on now could hardly be seen as a positive development.

So the question is, why is it happening. Our economy is doing pretty well and doing excellent when compared to the EU.

Yeah right it's doing well...What about our unemployment rate? How does it compare with European unemployment rates?

 

[Dissipate]

I hope the dollar crashes into oblivion since it is an imaginary concept that has been stripped of its ties to physical reality (gold & silver).

 

[GrGr]

A weaker dollar will likely drive up the price of oil (and other resources) even further making it even more difficult for other nations to continue to finance the US budget deficit. It will also make imports more expensive for Americans (like computer parts!) and cheaper for foreigners to buy US assets. But a weak dollar will also stymie world growth giving foreign nations less money to buy US products (what US products does the world need?) with. Soon inflation will begin to be a problem again and interest rates will rise. And when interest rates go up the US recovery will stall. A weak dollar will also not stop outsourcing. The US cannot do that by itself. Other nations will have to raise their low wages to stop the incentive for that to happen.

 

[ntdz]

a weak dollar isnt all negative. We can sell our goods cheaper abroad for one thing.

 

[IHateMyJob2004]

Originally posted by: Forsythe
I really hope it wont take long for the euro to become the international trade coin. The dollar low is bad to european countries, as we get the same amount of dollars for our goods, but they aren't worth as much in euro's. Now if only they would make the trade coin euro's.

Umm, countries are already moving to the euro.

 

What goods? As stated earlier, our trade deficit is at 6X.

In our current state of affairs, a weak dollar is not a good thing.

 

[XZeroII]

Originally posted by: 0marTheZealot
The dollar isn't backed by anything except by oil. If/When OPEC decides to sell oil in euros, the dollar will fall just as quickly as the Mark in the Weimar Republic.

Um, the dollar isn't backed by ANYTHING. We had this conversation awhile ago where everyone thought it was the greatest thing in the world to have a currency that wasn't backed by anything except good faith. Well, now we're seeing the end result. Without any type of backing, money is mearly a commodity to be bought and sold. The price is artificially controlled by foreign powers.

Thanks everyone who supports this aweful policy :|