The Fall of the Mighty U.S. Dollar
Hits lows against major currencies
September 20, in New York, the US dollar dropped in against European
Euro – to a record low through the $1.40 level – as the dollar
continued its skid on the heels of the U.S. Federal Reserve’s decision
to cut interest rates by half a percentage point on September 18.
recent depreciation of US dollar has created quite a stir in the
countries throughout the world. All the economies trading largely in US
dollar have some impact on their present working. But what is more of an
alarming question is that - is the US Dollar depreciation a well planned
initiative by the world wide central bankers or are we going to witness
an uncontrolled collapse of US Dollar?
US Dollar Index fell well below critical support levels — to within a
fraction of a point of its lowest level in history.
are shunning U.S. Bonds. The U.S. Treasury reported that purchases of
U.S. bonds collapsed from $97 billion to just $19 billion in July alone.
Overall, more U.S.
Treasuries were sold by global investors than are being bought in July.
Traders told the FT that the euro’s rise through the psychologically
important $1.40 level – a “pain barrier” for eurozone exporters
– triggered a surge in stop-loss buying, shooting the euro even
higher. The euro rose 0.8% to $1.4071 against the dollar. The dollar
fell 0.4% to $2.0093 against the British pound Sterling, skidded 1.5%
against the yen to Y114.44, and fell 1% to SFr1.1717 against the Swiss
franc, the FT said.
analysts put the dollar’s weakness down to speculation that Saudi
Arabia was set to abandon its peg against the US dollar.
talk was started after the Saudi Arabian Monetary Authority announced
that it was not going to follow the Fed and cut interest rates in spite
of the Saudi riyal’s link to the dollar.
Redeker, of BNP Paribas, said Saudi Arabia not following the Fed’s
lead was understandable given the rising inflationary pressure within
its economy. “The currency peg will come under increasing pressure the
more economic fundamentals of the region diverge from the recessionary
US environment,” he said. Marc Chandler at Brown Brothers Harriman
said the dollar’s fall was a reflection of negative sentiment towards
the dollar, and talk that Saudi Arabia would abandon its link to the US
currency was wide of the mark. The SAMA had subsequently announced that
it held rates steady to combat domestic inflation, he said.
did not follow the Fed with a rate hike last year and has repeatedly
indicated it will not abandon the peg.”
now, Saudi Arabia’s currency — the riyal — was pegged to the value
of the dollar. That meant every time our Federal Reserve cut interest
rates, the Saudis cut their interest rates, too. And when the Fed
inflated US Dollar, the Saudis had no choice but to inflate theirs as
now, the Saudi money supply is exploding 22% per year and inflation is
roaring at 4% per year. So its government is refusing to make matters
worse by lowering interest rates, and top Middle East analysts are
warning that the Saudis have taken the first step towards unpegging
their currency from the dollar.
would be disastrous — especially if it triggers a stampede away from
the dollar throughout the region — because these countries now control
more than 3.5 trillion U.S. dollars. Once their currencies are no
longer tied to the dollar, they’re likely to start dumping a big chunk
of that $3.5 trillion to protect themselves from the big losses that
automatically come with a sinking greenback.Bad news for the dollar is
pouring in so fast, it’s nearly impossible to keep track of it all
...International Investors Are Abandoning the Dollar, Driving It Toward
Arabia is the big man on campus in the Gulf. And historically, it's been
a strong U.S. ally. If it decided it no longer needed the dollar, many
other oil-producing nations might reach the same conclusion. In fact,
Kuwait already broke its dollar peg in May. And the United Arab Emirates
could break off its dollar peg in the near future.
Dollar Surpasses US Dollar
the first time since November, 1976, supported by surging oil prices and broad weakness in the
Canadian dollar pulled even with its American counterpart. Shortly after
eleven o'clock in the morning on September 20 the loonie hit par with
the U.S. greenback. Only five years ago, it bottomed out at 62 U.S.
cents, but has been on a spectacular run for the past few weeks, gaining
about five full cents since the start of the month.
Canadian dollar surged 1.4% C$1.0012 against the U.S. dollar.
Capital Markets analyst Adam Cole told Financial Times (FT) that he
expects the Canadian dollar to continue its upward trajectory. The
reason: “Canada produces the commodities the world wants – it is
still the number one commodity play among major currencies.” Cole
more, Cole said, the Bank of Canada is welcoming the currency’s
strength. Prevented from boosting interest rates by the global credit
crunch, the rise of the Canadian dollar has helped that nation’s
central bank in its battle against inflationary pressures.
most of 1970 and 1971 it was very close to the U.S., and on April 25
1974 reached a high of US$1.0443. This was a time when the Canadian
dollar was strong against a weakening U.S. currency.
the end of 1979, the Canadian dollar closed at US$0.86. The gradual, but
sustained decline in the value of the Canadian dollar, continued through
1993 and 1994. Another low-point came in 1998, after a year of turmoil
in international markets, with the loonie at US$0.6311 on Aug. 27.
People started making jokes about the "Canadian peso.'
Post's Paul Vieira:
Flaherty was a young trial lawyer, earning roughly $15,000 a year, the
last time he was able to trade a Canadian dollar straight up for U.S.
buck. That was 31 years ago. Now he's the Minister of Finance, arguably
the most important mover and shaker in Canada's capital markets. He will
go down in history books as the Finance Minister in charge when the
Canadian dollar regained its parity status with the United States. While
some may choose to celebrate, Mr. Flaherty is treating it
matter-of-factly. If anything, he is cautious and expressing concern about
the weakness of the U.S. economy -- which was a key factor in driving the
loonie to US$1.
with Jim Flaherty
is obviously weakness in the U.S. economy, especially in the housing
sector and in demand for autos. That affects consumer demand and that
affects exports. So that is a concern.
we are in the 16th year of sustained economic growth in Canada, the second
longest in this country's history. We have the best job market in a
generation. And Canadian corporate profits are at a record high and
corporations are well-capitalized. And the profits here are well above
their U.S. counterparts.
are in a position of strength in Canada, not just on the private sector,
but also in the governmental sector, where we have for the first time in
60 years every government in surplus. That is dramatically different than
in the United States.
am concerned about the weakness in the U.S. housing market. And I am
concerned about U.S. auto demand. The Canadian dollar is a reflection of
the strength of our economy, some weakness in the U.S. economy, and
commodity prices as well.
think we may see some impact that would be expected in the Canadian
economy, but within our expectations. We have known for some time, and
have repeatedly said, that one of the major risks and challenges we have
as an economy is a slowdown in the United States and we are now seeing
Express India Blog:
countries like India have adopted a system of exchange rate whereby the
rate is determined by demand and supply of currency but the central bank
or the government intervenes from time to time and regulate the exchange
rates to control its movement in any particular direction. Project India
– a profitable venture With forex reserves of about US$ 214.835 billion,
India is emerging as one of the fastest developing nations on the globe.
Even its GDP has crossed the US$ 1 trillion mark….
European Union is gaining strength at an extreme pace and the effect is
Dollar losing grounds against Euros. Also, is the fast track development
of the BRIC countries, whereby China and India to be emerging as fastest
developing economies on the planet. With so much happening, it is clearly
understood that much of international trade can happen with countries
other than US, resulting which the mighty Dollar is no longer in much
demand. Once the Asian or the exporting countries of the east understand
the losing relevance of US Dollar, they will have an increased interest in
switching of reserve assets out of Dollar. There are already instances
where the OPEC countries have shown a greater interest for trading in
Euros instead of Dollar. Even countries like Russia have put a leg forward
for trade in Euros. With a fall in demand for the King Dollar in the
international trade, that too for fossil fuel, the collapse of US Dollar
can not be seen as a distant reality….
now with the Dollar depreciating, we are (India is) suddenly witnessing
the evaporation of our forex reserves. Not only India, but all export
driven countries of the east are facing similar, or identical rather,
crisis. But the more complex situation is that even as we know, as well as
our counterparts in Asia and elsewhere are also aware of the situation
that if one or more countries try to switch over their reserves in Euros
or any other alternate currency, it will immediately bring down the value
of US Dollar to drastic levels. So it would take real guts for any country
to risk this stunt of switching out of the damn Dollar. Moreover, and most
importantly, as the US Dollar depreciates vis-à-vis Rupee, the exporters
are in a fix. Every exporter in India will start losing its
competitiveness against its Asian counterparts. Also, there is good news
attached with this. The importers in India will have a gala time as the
costs of imports have come down due the fall in Dollar value. But besides
the fall in exports and a rise in imports, there are other intricacies to
be understood. It is a known fact that US is the largest consumer in the
world. With the US Dollar depreciating, it becomes more difficult for the
Americans to continue their huge consumption pattern by borrowing more
money from rest of the world.
gradually, the US will start declining their consumption as imports gets
costlier. On one hand, this will lead to a further dip in US Dollar and on
the other hand, the exporting countries will be stranded with huge
unshipped stocks of a decreased value. On this side of the planet, we see
the Rupee appreciating. In economic terms, it clearly means that the
demand for Rupee is increasing, whereby it promises a better value and
hence more investments of international nature are attracted into the
country. When so much money is being pumped into the economy, naturally
more money is in rotation and a simple law of economics tells us that more
money in the economy will lead to a higher rate of inflation. Ofcourse
inflation is a disease which the government keeps on fighting round the
clock. But what surprisingly contradictory seems to appear here is whether
the inflation rate will rise or fall. One theory we saw is the money
supply thing where more inflow of money will lead to rise in
on the other part, when we consider the US Dollar declining, which means
the imports getting cheaper. With cheaper imports, the money flowing out
will be on a rise. Also, India imports more than three-fourth of its
Fossil fuel requirement. With Dollar depreciating, the oil will become
cheaper and as all the other commodity prices are linked with the price of
oil, we may see a fall in inflation level. Amidst the brouhaha of the
global imbalance, the million Dollar, or should we say the million Rupee
question is should we hold on to the US Dollars in our forex reserves and
watch it eroding day by day for should we hop onto Euros and witness a
global collapse of US Dollar. As rightly quoted by a Chennai based Mr. M R
Venkatesh, that the US Dollar that we are holding is nothing more that a
promissory note of a defunct finance company.