Thursday, March 19, 2009

Updated look at the US Dollar

Dollar heading for worst week in 24 years

SYDNEY (Reuters) - The U.S. dollar was heading for its biggest weekly fall in 24 years on Friday as investors feared the Federal Reserve's plans to buy longer-term government debt would cheapen the world's reserve currency.

In early Asian trading, the dollar was nursing a loss for the week of 5.2 percent against a basket of major currencies .DXY. That was the steepest decline since 1985 when the major economies agreed a formal depreciation of the dollar in the Plaza Accord.

"This is a historic moment, the start of debasement of the world's reserve currency, and it feels to many participants that in the grand sweep of history we are witnessing the end of 'Rome' on the Potomac," said Alan Ruskin, a RBS strategist in Greenwich.

Analysts said the Fed's radical decision to buy $300 billion of longer-term government debt and vastly expand its balance sheet meant more and more of the U.S. currency would be created, straining demand.

It also caused Treasury yields to plunge by the most in 26 years, reducing the dollar's yield allure, while raising inflationary risks in the longer term.

Taken together, analysts said the safe-haven appeal of the U.S. dollar, which had soared to a three-year high against a basket of currencies only earlier this month, is tarnished.

"U.S. dollars will be flooding the world as the printing presses work overtime," said Stephen Koukoulas, a strategist at TD Securities in London.

"With the supply of the U.S. dollar growing and demand for U.S. dollar stable at best or falling sharply, the price of U.S. dollar has to fall," Koukoulas said in a note to clients titled "Bye bye U.S. dollar. Sell sell U.S. dollar!"

Click daily chart below for sharper image

As stated in my 2009 outlook: Economic Tsunami of 2009, I believe Sixty Five on the US Dollar index will be seen this year.

Below is a look at the Dollar Weekly chart:

1 comment:

Chris said...


You gotta wonder, can the dollar slip off the edge of the cliff and manage to grab the lifeline TWICE within a few months? I have my doubts.

I think this time, when it breaks 80 or so on the index and doesn't pop back up, we'll see gold take out the all-time high for good. Could be this week!

Keep up the good work,