Posted on 11/20/2007 4:40:40 AM PST by DeaconBenjamin
The dollar fell to a record low against the euro on Tuesday as rumours swept the currencies markets that the Federal Reserve was set to deliver an emergency cut in US interest rates.
Traders said the talk was that that the Fed would cut interest rates when it released its new growth forecasts and the minutes from its October meeting at 19.00GMT.
The dollar fell 0.9 per cent to an all-time low of $1.4797 against the euro, dropped 0.7 per cent to $2.0640 against the pound and lost 0.8 per cent to SFr1.1070 against the Swiss franc.
Neil Mellor at Bank of New York Mellon dismissed the speculation, however.
“The Fed will want to keep its options open,” he sad. “By introducing an emergency rate cut, it would send the wrong message out to the market and seriously undermine its credibility.”
Indeed, David Woo at Barclays Capital said the likelihood was that Fed’s economic projections would be more upbeat than expected.
“With the market relatively confident about the prospects for a rate cut in December, the risk is these expectations will be disappointed somewhat, which would be positive for the dollar,” he said.
Meanwhile, stability on Asian equity markets put pressure on the yen as a pick-up in risk appetite saw the yen give back Monday’s gains.
Analysts said heightened risk appetite had prompted renewed demand for carry trades, in which the low-yielding yen is sold to finance the purchase of higher-yielding, riskier assets elsewhere.
The yen fell 0.3 per cent to Y110.10 against the dollar, lost 1.1 per cent to Y162.88 against the euro and dropped 1.1 per cent to Y227.29 against the pound.
However, Derek Halpenny at Bank of Tokyo-Mitsubishi said yen sell-offs were becoming less convincing by the day and he doubted the return of risk appetite would be prolonged.
He said the key signal of impending trouble for the financial markets in August was the sudden loss of liquidity in the money markets that triggered a spike in short-term money market rates.
“The very same development is now taking place again,” he said. “With financial markets in stress again, the scope for yen weakness looks limited.”
Today money is backed by cold hard electron bits. Just a series of Ones and Zeros.
And that's the way it is.
There needs to be coordinated intervention to support the dollar while the Fed cuts rates. Why does no one complain about a weak dollar bubble? There are a lot of speculators who would be driven out of the market by intervention.
Why not leave it flat?
It isn't like we didn't have fair warning from the last 3000 years of financial debacles. And it not like Greenspan was ignorant of what he was doing given his former writings on the role of gold as an indicator of the health of a currency.
Well, to be honest, I could also see the Euro and Yuan eventually tanking and the dollar beginning to rise sooner than many think.
What has happened here has also happened in Europe and China although they’re a year or so behind us (credit issues, etc...)
clip
China’s dollar peg.
The Fed’s loose monetary policy has succeeded in driving down the dollar with respect to many other currencies, particularly the Euro. Yet the yuan is still linked to the dollar despite China’s aggressive monetary expansion. How can this be? Surely the dollar depreciation should have broken the peg and forced the yuan to appreciate? Well, like all things economic, we have been there before.
http://www.safehaven.com/article-8427.htm
What is "Never," Alex?
I think so. He was Mr. Bubble for years, when we needed a Paul Volcker to give us our castor oil, in order to avoid greater pain later. It's hard to cut off the punch bowl though, a fed chairman is much more popular if he keeps the party going right to the inevitable bitter end.
Poor Bernanke has inherited an impossible situation.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
How? The two are contradictory.
If you mean leave the rate where it is, Bernanke won't because Cramer and the street scream the loudest, and because Bernanke's background tells us he believes the Great Depression was caused by not enough liquidity injection. He'll drop the rates, but it won't solve the problem.
They will tank after the dollar is a total wreck, and the global financial system is likewise wrecked. I don't see rabbits coming out of hats.
Amen.
Something tells me we may have to start over and redo it, sooner rather then later.
Who do we ask to conduct said outside audit of Fort Knox?
Or do the PTB scoff at such requests, like the Wizard of Oz’ gate keeper?
We've been doomed before: 1982, 1987, 1989, 1991, 1998, 2001, and yet we make it out bigger and better.
Manipulating currencies is not a costless exercise, far from it. To prevent the yuan appreciating against the dollar China's central bank (People's Bank of China) has to print more and more yuan with which to buy dollars. While this has been going on domestic credit expansion has reached dangerous levels. M2, currency and credit has been racing ahead at more than 17 per cent a year. This is akin to a runaway monetary train. Not surprisingly, manufacturing investment, real estate and the stock market are booming. Since last year alone the Shanghai stock market index has rocketed by more than 300 per cent. This has all the earmarks of a classic boom.
The PBOC is certainly not blasé about the situation. It has raised interest rates four times this year, with the one-year rate now standing at 7.02 per cent. These increases have not even dented the boom. This has led the PBOC to make noises about further interest rate hikes. It can make all the noises it likes, but this monetary-driven boom is going to require a little more fortitude on the part of the bank. The problem is not a purely monetary one. There is the vital question of the capital structure to be taken into account, a question that will have to be left for another article. Suffice to say for now that the distortions caused by a reckless monetary policy will require painful adjustments.
When the Chinese real estate and stock markets crash and burn (as they must) the entire global fnancial house of cards is going to be rocked.
"Just one more drink, bartender!" doesn't work forever.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~~Ludwig von Mises
Small taters compared to the shindig the politicians have set us up for.
On a happier note, the Univ of NM has not renewed the contract of Charles Truxillo the Atzlan nutjob.
He’s suing, of course.
There’s a glimmer. What did him in?
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