Dollar Sinks to Record Low for Third Day

Reuters ^ | Thu Nov 25, 2004 | Katie Hunt

[jb6]

Dollar Sinks to Record Low for Third Day Thu Nov 25, 2004 06:45 AM ET By Katie Hunt LONDON (Reuters) - The dollar sank to an all-time low versus the euro for a third consecutive day on Thursday and fell to a 4-1/2 year trough on the yen, hit by concerns about U.S. deficits and the view Washington is happy to see a weaker currency.

Warnings from Japanese and European policymakers did little to halt the dollar's slide, which accelerated last week after Federal Reserve chairman Alan Greenspan said U.S. deficits were unsustainable and appetite for U.S. assets was bound to dwindle.

"We have moved into a new stage of the dollar decline and (the dollar's fall) has become one of the policy tools policymakers use. The move is very much a full-fledged policy event. Until policymakers truly protest, what's going to stop the trend?," said Jim McCormick, head of foreign exchange research at Lehman Brothers.

The dollar fell to a record low of $1.3235 per euro by 1130 GMT. Against the yen, the dollar fell as low as 102.41 before recovering a touch to 102.54 yen. It has lost more than eight percent against the yen since late September.

The dollar also set new lows against other currencies -- a nine-year low against the Swiss franc, a 16-year trough on the New Zealand dollar and a nine-year low against a basket of currencies.

Weaker-than-expected data from Europe's largest economy had little effect on the euro. The Ifo research institute's pan-German business climate index fell to 94.1 in November, its lowest since September 2003 and below forecasts.

"Data from the eurozone is largely being ignored. Everyone is running with the trend," said Kristjan Kasikov, currency strategist at Calyon.

SNOWBALLING

Several investment banks cut their dollar forecasts, with JP Morgan targeting the dollar at 100 yen and the euro at $1.35 by the end of this year.

French Finance Minister Nicolas Sarkozy said that the United States must be determined to reduce its deficits so that the currency does not distort trade exchanges.

Japanese officials, worried a rising yen would hurt a recovery in the export-oriented economy, also stepped up their rhetoric.

Bank of Japan Governor Toshihiko Fukui said that recent movements in the foreign exchange market were not stable.

Earlier BOJ Policy Board member Hidehiko Haru said he would pay attention to any negative impact the recent rise in the yen had on the economy.

Japan's top government spokesman Hiroyuki Hosoda said the yen's recent surge did not reflect fundamentals and that authorities would act against rapid currency moves.

"The overiding sentiment on dollar is very, very negative and it's a question of playing chicken with the BOJ as to whether they intervene or not," said Tony Norfield, head of foreign exchange research at ABN AMRO.

Japan has not intervened in currency markets since March, after a record 20 trillion yen ($194.4 billion) of dollar-supporting intervention in 2003.

YUAN TALK

Also pressuring the dollar against the yen was speculation that China may decide to revalue the yuan in the next few days.

The talk mounted on Thursday with the premium on the yuan in the offshore market surging to its highest in more than a year with some analysts saying Beijing could reach a decision at an annual high-level economic meeting this weekend.

It is widely believed that freeing the Chinese yuan from its peg of around 8.28 per dollar will result in an appreciation of the currency and lift other Asian currencies with it.

China has come under heavy pressure from the United States to allow the yuan to appreciate, as some U.S. manufacturers say an artificially cheap yuan hurts jobs and exports.

Later on Thursday, the chief economists of the European Central Bank and the Bank of England are expected to make speeches in separate appearances.

[Rain-maker]

Watch this one break $2000 again.

[snowsislander]

Can you say opening up Alaska for drilling, how about off the coast of California?

Also, Florida's Gulf Coast is worth opening for drilling also.

[KeyWest]

Thanks for some sanity.

The best thing that could happen to us is that oil continues increasing. The trade off point between it and alternate sources of energy is almost there. A higher price for energy will spur development of solar panels, fuel cells and also coal, of which we only have a 200+ year supply. Nuclear may even come back when the public sees the trade off between cheaper energy and supposed risk.

Do not believe this, then think whale oil. Or buggy whips.

But, fear not. OPEC knows this and will keep oil prices down as long as they can.

Most of the arguments here are static, with the US in flux and everyone else not changing. The world cannot have the US catch the sniffles since they get the flu. Plus, just as there is speculation in the stock market, so in gold and commodities. Remember $800 gold?

[onyx]

The courts will be busy when the prices fall
and a property that was purchased for $1 million
is valued at half that.

[who knows what evil?]

I remember the 70's and it was no fun.

Everybody got their official Gerald Ford 'Whip Inflation Now' buttons at the ready?

[rpellegrini]

Could this be Soros' "nuclear option?"

[junta]

Mention those Greenspan ARM loans while your at it.

[the invisib1e hand]

Keep shorting...

yes, that's it. buy me another thousand

[uncbob]

Ain't nobody gonna benefit from this worldwide

Dollar goes down and price of Chinese goods etc go up who they hell will have the $$$$ to buy them

Can you say Chinese Depression

[truthkeeper]

I readily admit I am a financial dummy (slept through Econ 101), but always read these threads to try to learn something. Thanks for providing a post that even I can understand!

[ARCADIA]

Most cannot. It will be ugly.

Don't worry about it; your uncle Sam has already ensured that you have all the debt that you can handle and more. Next week we can talk about "having fun with derivatives - the end of economic life as we know it."

[truthkeeper]

Now your kind of financial planning I actually can understand. Good job.

[jriemer]

Keep shorting... I wouldn't be surprised to see the euro cost $2.50 in a few years. And that's good for us, and really bad for European Nazis.

It's also bad for Europe because China's currency is pegged to the dollar. They're trading with China at the same disadvantage as they are in America. They are getting shafted by having an overvalued Euro both from the east and west and they don't even realize it.

[ARCADIA]

Unless American labor drops below a buck an hour, then it's more cost effective to manufacture offshore.

It is not just the labor rate. Such a dramatic crash would cause us enourmous political instability which is something that may make our competitors that much more advantageous.

[ARCADIA]

For instance, we might not make the computer chip here, but we sure as shootin' better program it here.

You cannot program what you don't make. Just a small design modification and your entire development investment goes south. Just look at how easily Microsoft has erase anyone who trys to bolt onto their platform (and that is a very visible product). We need to retore our industrial base, a few niche markets will not float 300 million people.

[Freedom Dignity n Honor]

Wouldn't that make the American made products more competitive with the imported Chinese products and help the American manufacturers here and hurt the companies that export to the US?

[LibLieSlayer]

I can PROMISE you that I have seen many wells drilled and capped in the Gulf of Mexico, and these wells can produce at high volumes. They were capped off (and still are) waiting for the price of crude to get to the point of maximum profit... Natural Gas wells too.

I have fished many times off of these dormant rigs.

LLS

[jwpjr]

I still smart from all the banks that lent billions to Mexico based on its oil reserves. When Mexico went belly-up the banks expected the taxpayer to step in and save them. I have always likened the US economy to a forest. Over the years all sorts of external things affect the forest and its flora and fauna. Slowly but surely it gets out of balance and eventually reaches the point that it can no longer sustain itself. Then along comes a big fire and resets the forest to default. After that it starts another five or six decade cycle that will eventually require a big fire to save. Recessions and depressions are the forest fires of the economy.

[Texas Songwriter]

Hello Mr.Durasell....Yesterday as we slumbered after a fine Thanksgiving Day, with visits with our families, giving thanks for this great land, only a few markets were open on the commodities exchanges on Friday. It was very light in trading. Very little notice was given to the currencies by the media. But yesterday, Nov. 26,2004 will mark the day that the dollar stepped into the abyss and lost,forever, its position as the reserve currency of the world. It slipped below the support structure of the bearish heads'n'shoulders formation below the 1995 level. If you look at the USDX there are no fibocacci support lines between where we sit today and a USDX at 71, and at 71 there is minimal support. If we pause in our decent, which may or may not happen, it will be a freefall to 51. That translates to gold at about 1500 to satisfy the debt of the dollar. Please remember that when we hear that Japan or China bought dollars, they do not hold dollars in accounts. They hold a debt instrument denominated in dollars. They have, in no uncertain terms, decided to allow the dollar to fall and not offer any support. In other words, they are no longer loaning us money to fund our debt. That leaves, it seems to me, 2 choices, possibly three. We cut back spending. At this time there is no political will to do this on either side of the isle. I do not think it is practical to expect 535 heroin addicts to go cold turkey in the congress and spending your money is their dope. Bush had hoped to cut taxes, increase revenues to the government and "grow" our way out of debt. This does have historical precident, but what happened historically will not happen now because of the same problem President Reagan had. We generate X amout of revenues and increase spending 2X. That math will not work. So we arrive at the governments solution...That is to monitize the debt. They have begun to print, diluting the value of your current dollars until they think they will able to manage the debt load. I hate to say it because it always brings mocking and scoffing at the notion, but this is the same problem Germany had in the 1930's. Those of you who worked hard and saved, rather than living profligately and saved dollars in 1970 and 1980 and 1990 will be spending those dollars in the year 2005 or 2010 or 2015 and that same 1970 dollar will spend with the same purchacing power as a 2005 dollar or whenever you spend it. This is the real deal. I have been posting these warnings over the past few months and had hoped there was still time. Time has run out. Yes, the Fed or Snow may try to give lip service to the dollar, but all, and I do mean all money institutions are focused now. They are assuming a protective posture. There may be a few stopgap measures which are thrown up and move the USDX above 81.5, on an intraday swing, but I suspect not. We will freefall to 71.The momentum itself may propel us past that point and then there is no support until we reach 51. If anyone in America thinks this is good for you, your family, America and its future, you are out of your mind. Again I ask my freeper friends protect yourselves because Friday November 26,2004 in the quiet afternoon, when no one was really paying any attention the dollar died.

[InterceptPoint]

Could this be Soros' "nuclear option?"

Well this occurred to me also. But I'm betting that the amount of U.S. currency in circulation would make it impossible for someone like Soros to push the market this hard.

If there is a Freeper-Economist-Wiz lurking out there it would be nice to hear some authoritative discussion on the possibility. Soros has done this in the past with British Pound I think so it is not that much of a reach to suspect his presence here. Presumably he would be driving the dollar value down hard by selling dollars and then cashing out and buying the dollars back at the bottom of the market.

Is that how it works?