Dollar falls to 3-week low versus euro

Editor’s Comment: As long as principal reduction on falsely appraised mortgage loans is off the table, the world will view our economy as vapor and our economic and fiscal policies as unrealistic. As the perception of our economy and stewardship worsens so goes the dollar. The cheaper the dollar the more expensive it is to buy anything with it especially if what you are buying has any relationship or component with something produced outside the United States. This form of shadow inflation will become increasingly evident over the next few months and persist indefinitely. To overcome this we MUST be seen as breaking up Wall Street oligopoly and as regulating finance and commerce as a true referee instead of a helpless bystander.

Currencies

Jan. 11, 2010, 10:21 a.m. EST

Dollar falls to 3-week low versus euro

By Deborah Levine & William L. Watts, MarketWatch

NEW YORK (MarketWatch) — The U.S. dollar started the week under pressure Monday, falling versus major rivals and slipping to its lowest level versus the European single currency in three weeks after a strong jump in Chinese exports, as well as imports, supported expectations that the global economy could recover sooner or faster than the U.S. economy.

The greenback was also undermined by comments from a Federal Reserve official who said U.S. interest rates may remain low for “quite some time.”

“The strong Chinese trade report increased confidence in the global recovery,” said T.J. Marta, chief market strategist at Marta on the Markets. ” The U.S. dollar underperformed on the view that the global recovery will continue without its leadership.”The euro extended gains scored in the wake of Friday’s unexpected drop in December U.S. non-farm payrolls to trade at $1.4515 versus the dollar, up from $1.4409 in North American trade late Friday.

The dollar index (INDEX:DXY) which measures the greenback against a trade-weighted basket of six major currencies, traded at 76.042, down from 77.470 late Friday.

Euro’s post-payroll rally will be brief

Slow euro zone growth, rising fiscal concerns as well less reserve diversification by China should ensure that the euro’s rally on lower U.S. rate hike expectations doesn’t last long.

The greenback also weakened versus the Japanese yen, with one dollar fetching 92.40 yen, down from 92.49 yen.

The Chinese data showed the mainland’s exports rose 17.7% in December from the year-earlier month, sharply higher than expectations. See more on China export data.

China “remains the critical driver of global economic recovery and as long as growth prospects in China remain positive, [risk-oriented foreign exchange] will continue to be supported,” said Boris Schlossberg, director of currency research at GFT.

But after watching the dollar slide for most of the past year, many analysts expect it to strengthen in the first part of 2010 as the U.S. economy recovers faster than others in Japan and most of Europe. Read 2010 dollar outlook.

Fed, data

St. Louis Federal Reserve President James Bullard said at a conference in Shanghai that U.S. interest rates may remain low, easing concerns that the central bank could hike interest rates sooner than expected. Read more on Fed Bullard’s comments.

“Interest rates may remain low for quite some time,” Bullard said.

Lower interest rates tend to weigh on currencies, as they reduce the returns on assets denominated in those units, making them less appealing against higher-yielding assets in other currencies.

Traders will also tune into Atlanta Fed President Dennis Lockhart, who will speak on economic outlook beginning at 12:45 p.m. Eastern time.

On Friday, the U.S. Labor Department said the economy shed more jobs in December instead of recording the slight increase in payrolls economists expected. The report dampened expectations that the Fed could raise its target interest rate by mid-2010, which would support the dollar.

The currency markets’ reaction to the data, instead of following the equity markets’ reaction, further signaled that the U.S. dollar would resume its more traditional relationship with data. From the depths of the credit crisis, through last year, the dollar tended to move more based on whether investors sought its safe-haven status or were more comfortable moving back into commodities, equities and so-called risk-related assets.

“Friday’s U.S. payrolls proved another data point supporting the tentative return to trading negative U.S. data as negative for the U.S. dollar,” analysts at RBC Capital markets wrote in a report. “This week will give us further clues on that front, with the main highlight being retail sales on Thursday.”

One Response

  1. An excellent but wishful article in today’s New York Times, “What the Financial Crisis Commission Should Ask,” by Andrew Ross Sorkin.

    At http://www.nytimes.com/2010/01/12/business/12sorkin.html?hp

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