THE US Dollar Thread (merged)

[MonteQuest]

Stu,

Check out my post from another thread.

The dollar has been falling lately for these four reasons:

Large and growing current account deficit
Fed officials talking down the dollar
Spiraling oil costs hurting growth
Low interest rates / unattractive yields

http://www.peakoil.com/fortopic3105.html

See also:

Euro vs the Petro Dollar http://www.peakoil.com/fortopic1545.html

MQ

[MonteQuest]

See also Debt-based money explained

http://www.peakoil.com/fortopic1362.html+explained

[seb]

US$ is desintegrating : 1euro = 1.332$, 1$=102yens
This is going really fast now. No doubt there is lot's of speculation behind it but I guess this movement really follows the fundamentals. A guess for an upper bound for the euro? 1.4$? more?
ASPO suggested few months ago that crude oil is implicitely priced in euros and not in $ anymore. So do you expect that a big fall of the $ automatically puches up crude oil prices? Can anyone explain me the market mecanisms which would be behind this causality : low $ implies high crude?

Thank you

[Carrie]

I think low $ does = high price for crude. The lower the dollar falls, the more it will cost.
Just came across this article - looks like the Chinese have just cut a large portion of their U.S. Treasuries: Link
That could be significant for the U.S. dollar.

[smiley]

Just came across this article - looks like the Chinese have just cut a large portion of their U.S. Treasuries

.
Russia is doing so as well: Article
The gold market shows that the Arabs and Indians are buying gold for their dollars.
I don't think that the central banks will intervene anymore. Otherwise they would have done it yesterday. Thanksgiving day is the ideal day for an intervention because the US market is closed. Trading volumes are thin which means that you need relatively little leverage to alter an index.

There is still one big hurdle ahead, which is the 80 level for the dollar index (right now it is a t 82.3). Perhaps we'll see some intervention there, or a pullback. But if it breaks through that it will basically be a run for the exit. I don't even dare to speculate on how low the dollar can go then.

[JohnDenver]

$1=102 yen is hardly a disintegration. The yen marked its all time high of $1=79.75yen in 1995. Even that level didn't cause the end of the world or a meltdown of the global financial system. People got up and went to work, just like they always do. And a few years later, the yen was back down around 120. Rates move up and down. Yawn...

[The_Virginian]

Gold Holding over 450 (453 now)

[smiley]

$1=102 yen is hardly a disintegration. The yen marked its all time high of $1=79.75yen in 1995. Even that level didn't cause the end of the world or a meltdown of the global financial system. People got up and went to work, just like they always do. And a few years later, the yen was back down around 120. Rates move up and down. Yawn...

How many days did it took for the yen to go from 100 to 80? Imagine that happening for a basket of currencies.

[BabyPeanut]

Dollar reels on fears China selling US assets
11-26-2004, 11h33
LONDON (AFP) - The enfeebled dollar tumbled to record depths against the euro for the fourth day in a row, and hit multi-year lows against the yen and Swiss franc on reports China is selling US government bonds.
However, analysts noted that movements were being exacerbated by thin trading volumes, with many US participants taking an extended weekend after Thursday's Thanksgiving holiday.
The euro shot to a new all-time peak of 1.3329 dollars in early European trading Friday, hurdling the 1.33 threshold for the first time since its launch in January 1999.

The US currency has slid to a series of record lows against the euro this week and to multi-year troughs against a range of other currencies, buckling under the strain of the swelling US current account and budget deficits.
The dollar fell to a near five-year nadir against the yen, which rose to 102.15 to the dollar, the highest level since January 2000.
"The dollar took another hit against most major currencies in the wake of a report citing a PBOC (People's Bank of China, the central bank) member who said that China has reduced the size of its US Treasury holdings in its reserves to around 180 billion dollars," said Calyon currency analyst Mitul Kotecha.

"This has now been denied, but the implications are worth considering. At a time when concerns about the willingness of foreign investors -- especially increasingly important official investors (mainly Asian central banks) -- to fund the current account deficit are growing, the story will fuel fears of a dollar collapse."
The US currency also tumbled to the lowest level for nine years against the Swiss franc, for 12 years against the Canadian dollar, for five years against the South African rand and for seven years against the South Korean won.
The dollar's decline lifted gold prices above 455 dollars an ounce for the first time in 16 years.

The US currency's decline gathered pace after the Shanghai-based China Business News reported that China had cut the size of its US Treasury bond holdings in its foreign exchange reserves.
The newspaper cited Yu Yongding, a member of the monetary policy committee under the central bank, who was speaking at a seminar given at Shanghai University of Finance and Economics.
Yu later issued a statement clarifying his comments, saying China had reduced the proportion of its holdings in US Treasury securities but had not cut its portfolio in absolute terms.

The dollar has been under renewed pressure all week after US Federal Reserve chairman Alan Greenspan suggested further depreciation in the greenback might be necessary to reduce the current account deficit.
News that the Russian authorities are considering switching more of their foreign currency reserves from dollars into euros, a move thought likely to be mirrored by other central banks, has further soured dollar sentiment.
Analysts said that although there appeared to be no appetite in Washington for intervention to stem the dollar's decline, the European Central Bank might soon make a foray into foreign exchange markets to curb the euro's rise.

"If the movement of the past three or four days continues I think it will soon be regarded by the ECB as a disruptive move," said Bank of America economist Lorenzo Codegno.
"Should we have another big round of (euro) appreciation, clearly at some point the ECB will intervene, trying to at least moderate the pace of appreciation," he predicted.
The euro was changing hands at 1.3223 dollars against 1.3240 late on Thursday in New York, 136.01 yen (135.83), 0.6991 pounds (0.7016) and 1.5159 Swiss francs (1.5111).

The dollar stood at 102.91 yen (102.60) and 1.1470 Swiss francs (1.1414).
The pound was at 1.8908 dollars (1.8869), 194.58 yen (193.59) and 2.1693 Swiss francs (2.1537).
On the London Bullion Market, the price of an ounce of gold stood at 451.70 dollars against 451.15 late on Thursday.

http://www.turkishpress.com/business/ne ... 052pbo.xml

see also

Dollar Gains; China's Yu Denies Knowledge of Action on Reserves
Nov. 26 (Bloomberg) -- The dollar gained against the yen after Yu Yongding, a Chinese central bank official, denied saying his country had trimmed its holdings of U.S. Treasury securities.
The U.S. currency earlier today fell to the lowest since 2000 after China Business News reported Yu said China had cut its holdings of U.S. debt. Yu, a monetary policy committee member, said the report was ``distorted,'' in a statement on the Web site of the Institute of World Economics and Policies of the Chinese Academy of Social Sciences, where he is a director.

``The denial from the China story was the initial trigger for this move'' higher in the dollar, said Mitul Kotecha, global head of currency research in London at Calyon, the investment banking unit of Credit Agricole SA. ``There was a feeling that we've moved a bit too far'' on the dollar.
Against the euro, the dollar traded at $1.3262 at 11:25 a.m. in London, from $1.3269 late yesterday, according to electronic currency-dealing system EBS. It earlier reached a record-low $1.3330. The U.S. currency was also at 102.78 yen, from 102.46, after dropping as low as 102.01, the weakest since January 2000.

The U.S. currency was poised to gain, based on a technical indicator some traders use to gauge likely trends. The dollar's 14-day relative strength index against the euro closed at 80.2 yesterday. Against the yen, it closed at 24.3. Levels above 70 and below 30 suggest a currency may change direction. The index shows how rapidly prices have risen or fallen in a given period.

Currency Reserves
``When I woke up this morning and saw on my pager $1.3315 I was thinking to myself maybe people could be looking to lock up some profits today'' on the euro, said Naeem Wahid, a currency strategist at HBOS Plc in London. Wahid's team manages a $60 million currency fund and predicts the euro at $1.33 at year-end.
The dollar is still set for a weekly drop against the euro amid concern the U.S. current account deficit will undermine demand for the currency and policy makers will refrain from stemming its slide. Speculation central banks will reduce their dollar holdings contributed to the currency's drop, said Adrian Hughes, a currency strategist at HSBC Holdings Plc. in London.

Russian central bank official Alexei Ulyukayev told reporters in Moscow three days ago it may reduce the share of dollars held in its currency reserves. Indonesia may reduce holdings of dollars should the currency continue to slide, said Aslim Tadjuddin, deputy governor for monetary policy at the central bank, in an interview in Jakarta today.
Lowest Since 1995
China is the second-largest foreign holder of U.S. notes. The country's central bank declined to comment on the report that it had reduced its holdings. China's international reserve assets climbed to a record $514.5 billion in September, accounting for about 15 percent of the world's total, excluding holdings of gold, according to data compiled by Bloomberg.

China reduced its U.S. Treasury note holdings to $180 billion, China Business News said. Yu said in his statement that he knew ``nothing about the actions that (the State Administration of Foreign Exchange) has taken and will take.''
The dollar has dropped to a record against the euro eight times since this month. The Dollar Index, which measures the dollar against a basket of six currencies, fell to 81.53 today, the lowest since 1995, according to data compiled by Bloomberg.
The New York Board of Trade's index averages exchange rates between the dollar and six other currencies, with the euro accounting for 58 percent.

`Weren't Prepared'
DaimlerChrysler AG, the world's fifth-largest carmaker, said the dollar's decline against the euro will reduce the earnings of the Mercedes-Benz luxury car division.
``We weren't prepared for the dollar to be at this level,'' Thomas Weber, the management board member responsible for research, told journalists at a dinner in Frankfurt yesterday. ``It will influence the results at Mercedes and 2005 won't be an easy year.''
Japanese Finance Minister Sadakazu Tanigaki told reporters in Tokyo today the currency market needs careful watching. Japan must act on any unusual moves, Tanigaki said.

``The market has gone a little bit carried away'' with the dollar's slide, said Tania Kotsos, a currency strategist at RBC Capital Markets in London.
``It looks like our first-quarter forecasts are going to materialize quicker than we'd expected'' for the dollar, Kotsos said. The bank predicts the dollar to drop to $1.35 per euro and to 100 yen by the end of March.

`Real Risk'
Britain's currency climbed as high as $1.9037 today, within 1.5 cents of its strongest in 12 years, after Bank of England Chief Economist Charles Bean said international investors are unlikely to keep buying U.S. assets indefinitely, resulting in a ``possibly substantial'' drop in the dollar.
Bean's comments echoed those of Federal Reserve Chairman Alan Greenspan, who said in Frankfurt on Nov. 19 that overseas investors may tire of financing the U.S. current-account gap. ``A diminished appetite for adding to dollar balances must occur at some point,'' he said.
The deficit in the U.S. current account, the broadest measure of trade, was a record $166.2 billion in the second quarter. A wider deficit means more dollars need to be converted into other currencies to pay for imports.
``The real risk is that the sharper and the quicker the dollar falls that these investors pull out pretty quickly from U.S. markets,'' said Kotecha at Calyon. ``There hasn't really been signs of that recently but the risk must rise as the dollar falls and as the pace of this fall intensifies.''

http://quote.bloomberg.com/apps/news?pi ... news_index

[Kingcoal]

In the simplist terms, the dollar is falling because it has lost its value. The value of anything is determined by it's relative scarcity. Things become scare when their isn't much of that particular thing or when people hoard the thing. People (Asia), were hoarding dollars, but it's not a sustainable activity and now people have been converting their dollars into Euros or precious metals. When there are more sellers than buyers, the price goes down.

If the US would cut it's spending, the dollar would gain strength, but that doesn't look to likely with this administration. Many people are worried about a massive selloff, similar to what happened to several Asian currencies in the late '90's. If that happens, there are so many dollars out there that it probably wouldn't matter what action the US took.

A cheap dollar hurts forigners who invest in the US and will make it difficult for the US to print money. On the other hand, a cheap dollar makes US products and services cheaper. For instance, a BMW made in a US factory can be sold in Europe for much less than a German made one. It's more complicated than that, but you get the picture.

[JLK]

There are large number of factors that affect the value of a fiat currency. Right now, the two biggest factors contributing to the downward pressure on the dollar are the massive current account deficit that the US is running with respect to the world and the loose monetary policy that has been practiced by the Federal Reserve over the past several years.

I have been educating myself on this topic for the past several months. Here is a partial list of the web sites that I have been visiting:

Prudent Bear

Safe Haven

StrategyTalk Economics Discussion

If you spend a little time and read the articles on these sites, you should come up to speed fairly quickly. The Prudent Bear site is also a good source for breaking financial news during the week.

[Ferretlover]

Nov. 9, 2004 — Cubans have been fetching their precious U.S. Dollars from every conceivable hiding place — cans buried in patios, a wooden box under a tile in the kitchen, the roof over the pigpen, a hollowed-out coconut or old book, the traditional cupboard and mattress.

An astounding $500 million has come out of the woodwork in the past two weeks, local economists estimate, and been turned in for convertible pesos — which are not worth the paper they are printed on outside the country. The U.S. embargo forbids anyone from in engaging in dollar transactions with Cuba unless licensed by the Treasury Department.

The Federal Reserve recently fined Switzerland's largest bank $100 million for illegally transferring freshly printed dollar notes to Cuba and three other countries subject to U.S. sanctions, and the Treasury Department established a special team to follow Cuba's dollar trail.

"We hit the U.S. government where it hurts," Cuban Central Bank President Francisco Soberon said. "We have withdrawn their money from circulation and enhanced our sovereignty." does this mean there's 800 milion the US will have to honour?

[clv101]

So where has the $500 million in used bill gone? Into Cuban government coffers? To be spent buying what...?

[Euric]

So where has the $500 million in used bill gone? Into Cuban government coffers? To be spent buying what...?

Who knows, but if they are smart, they should have by now switched them to euros. American propaganda wants people to think that Cuba is desperate for dollars, so they contribed this trick to get the people of Cuba to exchange their fiat dollars for worthless pesos.

The reality is no foreign institution can legally transport US dollars to Cuba without incurring fines. The US may have jurisdiction and a say about where the dollars end up, but have no power over a bank shipping euros to Cuba.

Cuba knows the dollar is in decline and whatever Cuba can buy for dollars, they can also buy for euros. What better way to help damage your enemy's economy then by refusing to use his currency.

In early November, the dollar was equal to about 77 c€, now the dollar is at 73 c€, a drop of 4 c€. If Cuba converted in November its 500 M$ would have netted them 385 M€. Today, in dollar terms, that would be about 527 M$, and increase of 27 M$. Not a bad rate of return! Of course, that is valid only if you wish to convert back to dollars.

Once Cuba can obtain enough euros in foreign reserve, they can use it to back their own currency and then peg it to the euro. Cuba may be small potatoes, but if they are able to convince their trading partners around the world to use euros instead of dollars, it will be the US treasury who will pay the highest price for their arrogance.

[uNkNowN ElEmEnt]

Do you think Castro knows the US is in trouble financially?

[savethehumans]

I think Fidel's just getting a jump on what's coming. The dollar is toast, he knows it, he's always gotten along OK with Europe, and his people like the dollar too much. Good timing, good strategy. And they just found more oil off the coast, too. Nice end-of-the-year streak!

[Euric]

Do you think Castro knows the US is in trouble financially?

How can he not know? This is public knowledge. Any part he can play in helping damage the American economy, even if it is only a small amount is a lot better then helping.

[WebHubbleTelescope]

Somebody's hiding something:
http://mobjectivist.blogspot.com/2004/12/more-variations.html

[2007]

Hasn't Cuba always been a bit 'avangarde' with oil issues, first sharply reduced consumption, now exit the dollar. Maybe the next petro currency is the Rubel or Dinar.

[WebHubbleTelescope]

Hasn't Cuba always been a bit 'avangarde' with oil issues, first sharply reduced consumption, now exit the dollar. Maybe the next petro currency is the Rubel or Dinar.

How about that. Maybe the "Invest in Dinars" commercials that appear on Hugh Hewitt's radio show have some dark motivation? Why does Hewitt hate America?

My Dinar blog posting