The U.S. Dollar

[setravis]

The value of the U.S. dollar on the international market is continuing to plummet, despite record growth in the US economy.
Since October, the dollar has fallen 4 percent against both the euro and the Japanese yen. And this week, the dollar hit the lowest it has been against the euro since March 2005.

With the Dow setting records every week and America creating more jobs than it can fill, why is the dollar falling? There are several reasons.

Approximately 70 percent of all foreign-exchange currency is currently held in U.S. dollars. The U.S. then sells Treasury debt into that foreign exchange market.

This is a bit complicated, but here's what that means. Each U.S. bill is a receipt for Treasury debt. Once accepted as "money" it has value to its bearer. But, it is debt to its issuer. The system relies on the global flow of U.S. dollars in and out of foreign currency reserves. A smaller foreign exchange holding in U.S. dollars means a smaller pool out of which to sell U.S. debt.

This sets up a financial peril that is little understood by most Americans. It sets up a double threat to the dollar. It not only shrinks the dollar's value, but also raises both the trade deficit and the budget deficit. Now stay with me, here. This may be some of the most important information you will need to try and force Congress to do something – and also to take action to defend your own personal financial future.

It has become apparent that there is a new strategy to destroy America. It is a new kind of warfare designed to destroy the value of American currency via a carefully coordinated attack against our dollar by a coalition of our enemies. And, based on the rapid shrinking of the dollar's worth, despite an economic boom, it appears to be working.

Certain countries have begun quietly divesting themselves of U.S. foreign exchange holdings, converting them to euros. In 2004, the Switzerland-based Bank for International Settlement reported that the U.S. dollar-denominated deposits of OPEC countries fell from 75 percent of their total deposits in the third quarter of 2001 to 61.5 percent by the end of 2003.

In the same period, the share of euro-denominated deposits of OPEC countries rose from 12 percent to 20 percent. OPEC member euro-denominated deposits reached 44 billion in June 2004, nearly double the 23.4 billion euros these countries held in the third quarter of 2001.

In the same period of time, the dollar holdings of the OPEC member countries decreased from $145.3 billion to $132.1 billion. In 2005, China negotiated major oil and natural gas rights from Iran.

For years, North Korea's Kim Jong-il has been flooding the global economy with so-called "supernotes" – counterfeit U.S. $100 bills so good even Secret Service agents can't tell the difference without conducting sophisticated tests.

The 2005 arrests of major Asian crime figures in several U.S. cities led investigators straight to Pyongyang – and from there to Beijing. Experts now believe that a significant percentage of U.S. $100 bills now in circulation are counterfeit.

The strategy is to flood the market with counterfeit dollars to deflate its value. Then to convert U.S. holdings to euros, thus pushing the dollar into a deflationary freefall.

In January 2006, China announced an intention to reduce 75 percent of its foreign exchange reserves currently held in U.S. dollars.

Since China is the world's second-largest holder of U.S. dollar-denominated foreign-exchange reserves, it has the power to create a catastrophe. At the same time, Venezuela and Iran are now demanding that all payments for oil shipments be paid for in euros – not dollars.

In addition, both nations are planning regional central banking schemes designed to hold all foreign exchange holdings of participating countries in euros instead of dollars. This explains why enemy operators, spearheaded by members of the Saudi royal family, have flooded hundreds of millions of dollars into Venezuelan held bearer-bonds that are used to buy as many banks as possible throughout the Caribbean and South American areas.

All these factors cannot be coincidence. They reveal a concerted, well-coordinated strategy to destroy America through economics.

I believe oil is being used in this same overall strategy against America. Last October, OPEC agreed to reduce production to keep oil prices up near $60 per barrel. The price was suggested by Hugo Chavez after consultation with his friends in Tehran and Moscow and accepted by OPEC.

With that one brilliant maneuver, Chavez cornered the global oil market. Venezuela has vast deposits of heavy oil in the Orinoco, but heavy oil is expensive to extract and refine at free-market prices. However, at $60 per barrel, the Orinoco reserves give Venezuela the largest proven oil reserves in the world.

Not just larger than the vast reserves of Iran or Saudi Arabia, it is larger than both of them put together. In fact, it is bigger than all the proven oil reserves in the Middle East combined. Venezuela's deposits alone could extend the oil age for another 100 years.

Hugo Chavez is raking in some $200 million a day in oil sales, most of it from the United States. If Chavez demands payment in euros, it will throw the whole U.S. economy into a crisis.

Amazingly, Hugo Chavez has now become the go-to guy for all of OPEC. He's held audience with every oil sheik and dictator in the Middle East, including our "friends" the Saudis and Kuwaitis. With the recent re-election of Chavez, the U.S. is ringed by five of the most virulently anti-American leftist regimes in Latin America.

[cdrankwalter]

does this mean war with venezuela us ib  the horizon, i remember reading an article about one of the main reasons we went to war in iraq is cause saddam wanted to start taking euros as currency and bush was doing it to protect the value of the U.S , in time the euro seems like it will rule with a wide margin over U.S currency

[setravis]

Declining dollars is both good and bad.......


The U.S. dollar fell to its lowest point ever against the euro Thursday as traders bet the Federal Reserve will soon cut the overnight bank loan rate. U.S. Treasury Secretary Henry Paulson also warned Wednesday that volatility in financial markets won't relent any time soon. The news has Wall Street worried, but what does a depreciating dollar mean for U.S. consumers, businesses and the economy? Here are some questions and answers.

How does the dollar's fall against the euro and the British pound affect consumers?

For one, it makes it more expensive for Americans to travel and shop in Europe, said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. At today's exchange rates, it takes $1.39 to buy one euro, up from $1.17 in November 2005. That means a 300-euro room at a Paris hotel has jumped to about $417 (or more, depending on where you changed your dollars into euros) from $351 back then. "Anyone who goes to London or Paris right now is going to feel like they're being gouged and regret booking the trip," Gilmore said.

Conversely, the depreciating dollar encourages travel to the U.S. by Europeans who gleefully find their money buys them cheaper accommodations and everything seems to be on sale.

Is the dollar's decline bad for the economy?

Not necessarily. When the dollar loses value, U.S. manufacturers benefit as foreign trading partners buy up more of their goods. Construction and agricultural equipment maker Deere & Co. said last month that its third-quarter profit jumped 23 percent on strong international sales. Heavy equipment maker Caterpillar Inc. boosted its exports from approximately $9 billion in 2005 to $10.6 billion in 2006. More than half of Caterpillar's products made in the United States are exported.

That's why many currency traders think the Bush Administration is privately pleased by the dollar's decline, knowing that it turbocharges export sales. But as previous administrations discovered, you have to be careful what you ask for. Remember the backlash in the 1980s after the Japanese used the soaring yen to buy up everything from Rockefeller Center to the Pebble Beach golf course? That could be a prelude for another crisis of confidence if overseas buyers with strong currencies pick up the pace of their purchase of prime real estate and iconic major U.S. corporations.

In addition, Americans almost certainly will end up paying more for imported goods such as Mercedes and BMWs made in Germany, which is one of the 13 nations that use the euro as their currency. That reduces U.S. consumer spending power and also could trigger higher inflation.

Why is foreign investment in the dollar important?

Foreign buyers have to first obtain dollars when they want to purchase assets like U.S. Treasury securities and stocks and bonds, and their money supports growth in those markets.

Much of foreign investment in the dollar originates from overseas central banks in the form of U.S. Treasury securities, which are safer investments than stocks and bonds. The U.S. Treasury in turn uses those investments to finance the federal deficit. If central banks and other foreign investors shy away from U.S. Treasury securities, the government will have to pay higher and higher rates at auctions to find buyers for its bills, notes and bonds. And that would eventually push up borrowing costs for all Americans.

Currency traders anxiously await the Fed's Tuesday meeting for its decision on interest rates, which could further weaken the dollar. The expected quarter-point cut to 5 percent would still leave overnight rates above the European Central Bank's 4 percent peg. But by narrowing the gap, it could cut into traders' profits.

Currency traders make money by financing purchases of higher-yielding currencies like the dollar with lower-yielding currencies. They earn money on the assets backed by the higher U.S. interest rate, pay back the loan on the lower-yielding currency, and then pocket the difference.

Will this affect my paycheck?

Yes, in the sense that a weaker dollar can't stretch as far to buy foreign-made products.

"It reduces purchasing power by raising the cost of imported goods, and in some cases there may not be perfect substitutes, so consumers might end up paying higher prices," Gilmore said.

In the long-term, workers could demand higher pay to compensate for that diminished purchasing power, straining businesses' resources, he said.

Falling purchasing power and rising prices force the Fed to balance its two major responsibilities: trying to maintain stable prices while promoting growth. Wall Street is hoping they focus on the latter, at least for now, crossing its fingers for a rate cut to jump-start the economy.





 
 

[setravis]

The Other Side of the Dollar Slide.......


Warm Pizza and Hot Rupees

I saw a snippet of an ad campaign yesterday where Yankee Stadium turns into pepperoni pizza, hot dog blimps fly by, and buildings are topped with whipped cream. New York City's tourism organization aiming to attract 50 million tourists annually launched a $30 million global marketing push.

Not-so-ironically the agency hired is British and partly owned by a French Holding company. Perhaps it offers a clue to what Europeans and likely many others think about buying space in the U.S. I'd guess they'll very likely be successful, and I'd imagine plenty of trips to the U.S. are being planned with big smiles based on what the currency exchange window is telling them pre-flight. I would keep this in mind for U.S. leisure industries, hotels, and online ticketing solutions because business should boom when most of us in the U.S. are tightening our belts, foreigners are fastening their seat belts. And they'll buy a lot of stuff when they arrive. There are some jewels inside a sector that a lot of investors are writing off based on weakness in the U.S. consumer. Look for those sending invoices outside the U.S.

In a perhaps even less crowded trade I'd note the same day as this campaign was launched, Infosys (INFY) reminded us of the other side of the dollar slide. Many multi-nationals are pointed to by almost every analyst now as benefiting from the weak dollar, often extending to predictions for the market as a whole now that foreign sales account for so much of the "U.S." companies' revenues. I want to reverse that logic and find out who is getting hurt. At the top of that list, as a good example, is a company that I owned for many years from the long side, INFY, so if anything I'd be biased by its remarkable run. I am not. I still believe the company is among the best in the world. However, its best customer, the U.S., is paying with dollars worth less and less against the Indian rupee - an exchange rate that has changed by 16% in the last 12 months alone.

I buzzed in July that Infosys, the outsourcer, was in the process of outsourcing itself. It was hiring workers in Guadalajara, Mexico because of fierce wage pressures that became concerning. Being a low cost provider is a great sales pitch until the salesman is late because He's asking for a raise at the home office. The pressure will likely grow, as well it should, since the standards of living will marvelously march higher, taking desires along with them. The added headwind for these outsourcers is that they are selling into the U.S. and getting paid with dollars worth a lot less while pricing pressure and competition heats up – a wicked brew. More than two-thirds of Infosys' revenues comes from North America.

I think there may be a terrific opportunity nearby to balance extreme optimism (my own included) about technology and long positions, with carefully selected paired trades by shorting technology companies selling into the U.S. next to longs selling from the U.S. Infosys, until proven otherwise, is a horse you may not want to bet against, but some of its cousins have peaked my curiosity. INFY's numbers this week offer several clues from my perch. The shares are down (5%) year-to-date against an 18% rally in the S&P Technology Sector, offering a more reliable clue.

[setravis]

More Dollar Doom....... 

IF THE DOLLAR WERE AN ANIMAL, IT MIGHT BE A LAMB...a fluffy, adorable little lamb...surrounded by a pack of wolves. The dollar is simply no match for the vicious influences that threaten to devour it — influences like a Federal Reserve that promises to combat every financial crisis with ample doses of additional credit.

Part of a recent show with an Orlando, Florida radio station focused on the immense losses announced by Merrill Lynch and Citigroup, and the departures of the top managers of both firms. Merrill wrote down over $8 billion of bad financial paper, leading to a quarterly loss of nearly $3 billion. And Citigroup has massive losses that may be in the vicinity of $13 billion or more. These are mind-boggling numbers, yet my view is that we are just seeing the tip of a few icebergs.

It seems that over the past few years, much of the financial industry loaded up on bad debt instruments. I will not even dignify this rotten paper by calling it some sort of "investment," because there was and is essentially nothing to back it up. There are entire portfolios filled with subprime loans, initiated via "no documentation" loans against over-appraised buildings on the far side of the railroad tracks. In other words, these are worthless loans that will never see a dime of repayment. In many cases, these loans are evidence of economic crimes.

When the banks and investment houses acquired these bad books of business, the risk models that they used were pure guesswork. In the real world, engineering has made complicated structures like bridges and skyscrapers safer over time. But the so-called modern "financial engineering" has done nothing of the sort in the economic world. It all goes to show that just because the human mind can come up with an idea, it does not mean that people should act on it, let alone back it with their funds.

At this point, it is all but impossible to value much of what the financial houses have on their books. So the write-downs are just beginning. I believe that there are greater losses lurking in the shadows for both Merrill and Citigroup, and for many other banks and investment houses around the world. Several well-known banks in Germany, for example, are on the brink of disastrous write-downs. It is just a matter of time before these losses become public.

While on the air in Orlando, the host cracked a few jokes about how Merrill Lynch's Stan O'Neal is receiving a $160 million severance package for departing in the wake of his troubled tenure. This huge sum is surely far more than he deserves. After all, Mr. O'Neal took some big paydays over the past few years when things looked good at Merrill and he was firing 26,000 people to juice up the bottom line. So why does he get the big bucks again, on the way out the door, now that his ship has hit the rocks? Good question.

Then the host said what he anticipates for the U.S. economy and how the individual investor should protect himself from the coming turmoil. His, reply was that he believes that the U.S. dollar is in a long state of decline. This is going to be an ongoing tragedy because so many people in the U.S. and around the world will be caught in the riptide as the value of the dollar washes away.

Do you remember when you would walk into a store and the owner might have the first dollar he ever earned in a frame, hanging on the wall behind the counter? People were proud of their money and trusted it as a long-term store of value. Not any more. Yet most people in the U.S. know only the dollar and understand only the dollar and their savings and investments are almost entirely in the dollar. So what happens when the value of the dollar just disintegrates? It is painful to think of the hardship that is coming down the road.

No one really knows how the decline of the dollar will play out. There is no modern precedent for what is about to occur as the world's reserve currency evaporates in value.

Literally billions of people rely upon the U.S. dollar as the economic rock that holds up the foundations of the world economy. Yet that rock is turning into loose sand. How does one save, let alone invest, in a world where the value of the dollar is in irreversible decline? A declining dollar is the same as the destruction of capital.

My advice is to load up on gold and other precious metals and mining shares in companies that control real ore in the ground. While you are at it, also go for the companies that own or control real energy reserves, such as oil and gas, coal, uranium and renewable energy systems.

As if on cue, last month, the British newspaper The Independent launched a story with these words:

"A new phase in the credit crunch, one of '$1 trillion losses,' seems to be dawning. The crisis at Citigroup and renewed doubts about some of the world's leading banks disquieted stock markets on both sides of the Atlantic recently, with the fractious mood set to continue."

So there are a trillion dollars of losses yet to be booked...and a company the size of Citigroup does not have the capital to manage itself as an ongoing entity...and the prices for gold and oil are skyrocketing as the value of the dollar declines.

My advice is to protect yourselves, dear readers. There are wolves at the door.

The dollar's fall has some other industries on the rise. Gold and oil have been hitting all-time highs lately and now may be the time that real change begins to occur.

Ultimately, the only story that counts is your own. Whether you buy the story of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions make an individual's due diligence much easier.   

[setravis]

Big Firms Offer
A Money Haven
As Dollar Skids
By BRETT ARENDS
March 1, 2008; Page B1

Millions of Americans are watching the collapse in the dollar and wondering what, if anything, they should do about it -- apart from canceling this summer's trip to Europe.

Should you move your money into euros? Gold? Soybeans?

WEAK-DOLLAR BETS

Reasons to like "large-cap growth stocks" in a weak-dollar world:
• They tend to have high and rising overseas earnings.
• Falling dollar makes those earnings more valuable.
• Falling dollar also makes shares more attractive to foreign investors.Try Wall Street -- and particularly the shares in big-name American growth companies such as Intel Corp., Procter & Gamble Co. and Coca-Cola Co.

For U.S. investors, they're an antidollar play. And, it so happens, many of these shares are having a sale right now. For example, chip company Intel is trading at just 14 times forward earnings, about as cheap as it has been in a long time.

We think of them as "American," but of course the biggest and most dynamic U.S.-based companies are really international.

Intel gets 81% of its revenue from outside the Americas, according to its most recent accounts. For Hewlett-Packard Co. the figure was recently 69%, and for Caterpillar Inc. it was 60%. Last quarter, International Business Machines Corp. generated $11.7 billion in revenue from across the Americas. From Asia, Europe, Africa and the Middle East: $16.3 billion.

Google Inc. is nearly half and half these days. So is Cisco Systems Inc. and Johnson & Johnson. For big brand-name companies, from McDonald's Corp. to Apple Inc., overseas markets are of huge and growing importance. And those sales are growing much faster than those in the U.S., so they make up a bigger share of sales each year.

When the dollar falls, investors in multinational companies get two benefits. First, any products made in the U.S. for export become more competitive against those made elsewhere. It's good for Boeing Co., bad for the Airbus unit of European Aeronautic Defence & Space Co. And second, it means foreign sales and earnings are worth more in dollars.

Meanwhile, the falling dollar has another, underreported and underappreciated effect: It makes U.S. shares much cheaper for foreign investors. This should attract more foreign buyers in due course -- pushing share prices back up.

For example, in nominal terms Wall Street -- as measured by the Standard & Poor's 500-stock index -- has only fallen 15% from the high reached last fall.

But to an investor in euros, the market has now fallen 23% since June -- and nearly 50% from its peak in 2000.

In general, the biggest companies and those with the higher growth profiles tend to have higher overseas exposure. These same companies also tend to be safer in a turbulent market, a big plus these days.

The easiest way to play them is through a simple, low-cost exchange-traded fund. Index-fund giant Vanguard Group recently introduced a Mega Cap 300 Growth ETF (trading symbol MGK). It holds stocks with a median market value of $46 billion. A similar ETF, with a longer trading history, is the Dow Jones Wilshire Large Cap Growth SPDR (ELG).

[setravis]

Get used to high prices.......

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.
Get used to high prices
The Fed has a mandate to keep inflation in check. But global forces and worries about the U.S. economy will keep prices high for the foreseeable future.
Full Text:
Get used to high prices
The Fed has a mandate to keep inflation in check. But global forces and worries about the U.S. economy will keep prices high for the foreseeable future.
By Chris Isidore, CNNMoney.com senior writer
June 12, 2008: 3:30 PM EDT
NEW YORK (CNNMoney.com) -- For those struggling to deal with record gasoline and soaring food prices, there's bad news and more bad news.
Economists think inflation is here to stay. And it's likely to get worse.

A weak dollar and growing economies in emerging markets have conspired to send commodity prices higher. Those factors are unlikely to change anytime soon.

"We're more open to influences from the rest of the world than we were before," said Jay Bryson, international economist with Wachovia. "That does make it more challenging to keep inflation under control."

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.

"The Fed can't control prices of commodities determined in a global market," said Rich Yamarone, director of economic research at Argus Research. "If it could, it would have done so already."

On Friday, the Labor Department will report its latest reading on inflation. According to estimates from Briefing.com, economists expect that the Consumer Price Index (CPI) rose 0.5% in May. That would be the biggest jump in a year. It also would likely mean that prices would be up more than 4% on a year-over-year basis.

The so-called core CPI, which excludes food and energy, is also expected to pick up speed. Forecasts are for a 0.2% jump, following a 0.1% gain in April.

And the June CPI numbers could wind up showing even bigger gains. So far this month, retail gasoline prices have hit a series of record highs and topped $4 a gallon for the first time.

Futures prices for oil and key commodities such as corn have also climbed to record levels. Corn futures shot above $7 a bushel for the first time Wednesday as flooding in the Midwest trimmed forecasts for this year's harvest.

But it's not just oil and food that are leading to higher prices for consumers. A separate inflation reading reported Thursday showed the price of imports, excluding oil, were up 6.6% in the 12 months ending in May. That's the highest increase in that measure in 20 years.

A weak dollar has overseas exporters demanding more greenbacks for their goods.

Rapid growth of manufacturing and services overseas has workers in developing economies such as China and India winning healthy wage increases. That also raises prices of those countries' exports.

In addition, those countries have seen robust gains in auto sales, which should lead to even more demand for oil in the years ahead.

Another factor lifting prices is a weaker dollar. The dollar has lost about 13% of its value compared to the euro since August. This means it takes more dollars to bid for commodities against traders in Europe and Asia.

The Fed's hands are tied
Much of the weakness in the dollar has been laid at the feet of the Fed, which has slashed interest rates seven times since September. At the same time, central banks elsewhere have made only small cuts to their interest rates.

And even with the Fed now signaling it is likely to keep rates steady in the near term, the dollar has continued to slide as the head of the European Central Bank suggested that the ECB would raise rates soon. Those comments sent oil soaring to a record close of $138.54 on Friday.

Oil analyst Peter Beutel, president of Cameron Hanover, said he believes 90% of the rise in oil prices since last August was due to the Fed's rate cuts and the expectations of rate hikes in Europe.

"If the dollar was where it was last August, there's a very good chance we might never have seen $100 a barrel oil, maybe not even $90," he said.

The Fed, which has a mandate to keep prices in check, has been voicing greater concern about inflation in recent weeks. Most recently, Fed Chairman Ben Bernanke said Monday there is an increased risk of high food and energy bleeding through to the price of other goods and services.

But most economists don't expect the Fed to raise interest rates -- its traditional way of combating inflation -- until the end of the year at the earliest.

Generally, higher rates cool U.S. economic activity and cut demand for goods and services, which in turn leads to lower prices.

However, the Fed also has a mandate to foster sustainable economic growth. And with the unemployment rate registering its biggest spike in 22 years in May, the Fed is not likely to push rates higher soon, economists said.

There's also the fact that the Fed typically prefers to stay on the sidelines in the middle of a presidential election.

"I think you'll see the Fed talk up a storm about the caustic nature of inflation, because that's all they can do now, at least until the election is over," said Yamarone.

To that end, investors are currently pricing only a 20% chance of a hike at the Fed's next meeting, a two-day session that concludes on June 25.

Others say the Fed also has to be worried about the reaction of financial markets if it made a sharp and sudden move to raise rates.

"The Fed is painted into a corner," said Barry Ritholtz, CEO and director of equity research for Fusion IQ. "They don't dare raise rates. The credit crisis is not even remotely behind us. So the Fed has limited options and there's only so much they can do."

With that in mind, Wachovia's Bryson thinks that inflation will peak in the third quarter of the year with an annual rate of 4.3%, up from the current reading of 3.9%. Yamarone sees consumer prices getting as high as 5% annually.

But Bryson said even if the rate of price increases retreat late in the year, the new floor for prices will be a lot higher than they used to be.

"Corn and oil are not going to go back to where they were a few years ago," he said.

[setravis]

Dollar pain hits close to home
When you pay more for oil and other imported goods, that's the fault of the weakened greenback.
By David Ellis, CNNMoney.com staff writer
Last Updated: June 27, 2008: 3:43 PM EDT



NEW YORK (CNNMoney.com) -- The weakened dollar isn't just wreaking havoc for Americans traveling overseas - it is hitting consumers right at home.

From soaring prices at the pump to rising food costs, the impact of the declining greenback has been far reaching.

"It touches on so many things when you think about it," said Dustin Reid, senior currency analyst at ABN AMRO in Chicago.

On Friday, the dollar eased against the euro, as the 15-nation currency bought $1.5790, up from $1.5760 late Thursday. The dollar also fell against the Japanese yen but gained against the British pound.

Oil and gas Many analysts have blamed soaring oil prices, at least in part, on the declining dollar.

Oil, like many other commodities such as wheat and gold, is priced in dollars. So if the greenback weakens, many investors buy oil at its current price to hedge against inflation. The drop in the value of the dollar also forces producers and traders to demand more in dollars for their oil in order to reflect its current value.

That increase, however, is not just reflected at the pump. Companies facing rising fuel and ultimately transportation costs often times are forced to pass those increases onto consumers.

Just this week, Dow Chemical Co (DOW, Fortune 500). announced plans to raise the price of its goods by as much as 25% as a result of rising energy costs.

Imports But consumers' pain doesn't end there. They are also getting squeezed by paying more for imported goods.

Even if you don't indulge in Russian caviar or wear a tailored European suit, many everyday items, as well as the materials used to produce American products, come from overseas.

And when the dollar's value deteriorates, Americans find that their purchasing power doesn't go as far for foreign goods.

Exports One silver lining amid all the dollar doom recently has been the boom in U.S. exports.

While the nation's trade gap widened in April, exports have been on the rise in recent months as a weaker dollar makes domestically produced goods more attractive to foreign buyers.

That has also helped lift sales for U.S. manufacturers that export their goods. Shoemaker Nike Inc. (NKE, Fortune 500), which posted a 12% jump in quarterly profit earlier this week, was helped in large part by international sales.

"The fact that the dollar is weak is keeping this country out of a recession and keeping some jobs on the board," said ABN AMRO's Reid.

How we got here To be certain, the dollar has been falling against some of the world's biggest currencies for the better part of this decade.

But it wasn't until the credit crunch erupted that the greenback's decline picked up speed. As of the end of May, the U.S. Dollar Index, which measures the greenback's performance against six of its biggest trading partners, has fallen just over 11%.

Much of its decline, however, can be blamed on the Federal Reserve. When the Fed cuts rates, it puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors.

And, since September, the central bank has cut short-term interest rates seven times to help ease the credit crunch and keep the economy from tipping into a recession.

Hope for a rescue? Currency experts such as Kevin Chau, a foreign exchange analyst at IDEAGlobal in New York, are betting that the dollar won't stage a recovery. They see higher oil and food prices continuing to weigh on U.S. consumer confidence, while the outlook for the nation's economy grows increasingly bleaker.

Certainly an increase in interest rates by the Federal Reserve would help prop up the dollar, but most market observers aren't expecting that to happen until at least the fall - and possibly not until next year..

Were the dollar's condition to severely worsen, both the Treasury Department and the Federal Reserve could orchestrate a rescue by tightening the money supply, including repurchasing government bonds. Or they could seek help from other central banks, who would buy dollar-based assets.

In the meantime, currency experts anticipate that top officials - including Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke - will rely on the dollar remedy of choice: publicly stating they support a strong dollar policy.

[setravis]

Dollar down, but not out, as second half begins
Gradual strengthening expected, but some are bracing for more bumps...

TOKYO (MarketWatch) -- At the beginning of the second half of 2008, the dollar is mostly down but it remains above its lows against major rivals.

Strategists are mostly in agreement that the currency's direction from now will be largely determined by the Federal Reserve's interest-rate policy. The jury's still out on exactly what that policy will be.

While most expect the dollar to end the year higher, the road there could be bumpy and full of holes, depending on what route the central bank takes.

The Fed's easing cycle since September was a significant source of fundamental pressure on the dollar, as lower interest rates eroded the returns on dollar-denominated assets. As the central bank cut interest rates to support the economy, the dollar spiraled downward, too.

The first half was not kind to dollar bulls. The euro gained more than 7% against its U.S. counterpart, which shed about 5% against Japan's currency. The dollar index (DXY:US Dollar, which tracks the greenback against a basket of six major currencies, was down more than 5%.

The weak dollar has helped fuel a surge in the price of dollar-priced commodities, such as oil. That, combined with economic woes, took its toll on Wall Street, especially in the second quarter. In the first half of 2008, the Dow Jones Industrial Average lost 14%,  the broad S&P 500 Index  fell 13% and the tech-heavy Nasdaq Composite slumped 13.6%.

The second quarter also brought some new records for major currencies. In March, the euro rose as high as $1.5903, its loftiest level since it began trading in January 1999. Against Japan's currency, the dollar slid to a 12-year low of 95.75 yen.

But with the Fed signaling it could be on hold -- and some investors even betting on a hike before the end of the year -- those lows just might stand for a while, and the dollar could slowly gain traction for a long-awaited turnaround as growth in other regions starts to slip.

"Our directional view is that the dollar is likely to hit gradually higher to the end of this year," now that the likelihood of another U.S. interest rate cut is fading away, said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney.

By contrast, European Central Bank officials are clearly focusing on inflation over growth. They backed up their recently hawkish talk Thursday by raising the central bank's key lending rate for the first time in 13 months by a quarter of a percentage point, to 4.25%, as expected.

Some had believed the hike could be a one-shot deal -- and ECB President Jean-Claude Trichet appeared to back up those views by telling reporters after the decision, "starting from here, I have no bias" on interest rates.

Last month, the dollar got a new friend in a high place: Ben Bernanke explicitly warned the dollar's weakness was contributing to U.S. inflation and signaled that the world's most powerful central bank would not welcome a further decline of the greenback on international currency markets.

Bernanke surprised markets in light of the central bank's long-standing practice of avoiding comment on the dollar, instead deferring to the Treasury.

The dollar's recent low value has "contributed to the unwelcome rise in import prices and consumer-price inflation," Bernanke said in a June 3 speech, adding that the Fed and Treasury are watching the situation closely.

Another euro test
To be sure, not all strategists think the Fed has put its interest-rate ax back in the woodshed.

"We continue to expect that the next move in U.S. interest rates is down," to1.50% by the end of the year, wrote Ashraf Laidi, chief foreign exchange strategist at CMC Markets US, in a note to clients.

Easing will continue not only due to erosion in economic fundamentals, "but also the negative repercussions to the already shaky financial system," he said.

Even some who predict a gradually weakening euro in 2008 say the worst might not be over for the greenback.

"In the near term, actual and expected ECB tightening will likely remain supportive of the euro and, with U.S. economic performance still at risk, another euro/dollar test of $1.60 remains likely," wrote Robert Sinche, head of global currency strategy at Bank of America in New York, in a note to clients.

"However, our forecast of gradual euro/dollar weakening during the latter third of the year, with a move toward $1.50 by year-end, results more from potential euro weakening, albeit from very strong levels, than dollar strength," he added.

Dollar well above yen lows
Against the yen, the dollar is also an interest rate story.
Since February 2007, the Bank of Japan has kept its benchmark unsecured overnight call loan rate at 0.5%, the lowest in the developed world.

The BOJ shifted to a neutral stance from a tightening bias in April, when it also downgraded its economic assessment.

Despite wavering risk appetite amid global turmoil, the interest rate differential will continue to support carry trades, which will weigh on the yen to the benefit of other currencies. In such trades, investors borrow funds at lower rates to invest in high-yielding assets.

Indeed, despite the dollar's rough ride this year, it's still trading significantly above 79.85, set in April 1995 -- its post-World War II low -- and economists don't expect a buck to be worth less than a 100 yen coin anytime soon.

RBC Capital Markets forecasts the dollar to buy 109 yen in the third quarter, and 110 by the end of 2008.

[waxweazle]

 

[setravis]

This is a rise?

[setravis]

Fears of global slowdown buck up the dollar
Wednesday August 6, 2008
Dollar rises against major currencies as fears of economic slowdown grip Europe, Asia


The dollar climbed to eight-week highs against the euro and seven-month highs agains the yen as fears of a global slowdown helped the dollar continue its rally.
The dollar rose to 109.54 Japanese yen from 108.17 yen late Tuesday.


Meanwhile the 15-nation euro dropped to $1.5420 from $1.5473 after going as low as $1.5396, and the British pound sank to $1.9475 from $1.9562 ahead of interest-rate decisions by the European Central Bank and Bank of England Thursday.

The dollar gained as gloomy economic signs came in from abroad.

The Japanese government said a monthly index of business conditions was worsening, setting off the yen decline, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp.

Meanwhile, the German government said industrial orders dropped unexpectedly in June, with orders from elsewhere in Europe leading a decline that underlined pessimism about the outlook for the continent's biggest economy. Orders dropped 2.9 percent in June, following a 1.4 percent drop in May, the Economy Ministry said.

Ashraf Laidi, a currency strategist at CMC Markets, said the decline, the seventh in a row, along with a leaked report by German newspaper Sueddeutsche Zeitung claiming that German second-quarter GDP likely shrunk by 1 percent, would weigh on the European Central Bank at its Thursday meeting.

"The hawkish rancor of (ECB President) Jean-Claude Trichet is likely going to be toned down considerably," Woolfolk said. Rate-hike talk will be cast aside, and Great Britain may signal future rate cuts, he said. "The ECB and Bank of England don't have much to cheer about."

The ECB is expected to keep its benchmark rate unchanged at 4.25 percent, given the 4.1 percent inflation in the 15-nation euro zone, while the BoE is expected to keep its rate steady as well, at 5 percent.

The Federal Reserve left the benchmark U.S. federal funds rate unchanged at 2 percent on Tuesday. Before rising inflation forced a pause in June, the Fed had cut rates seven times since the fall in hopes of reviving the flagging U.S. economy.

Talk of the Fed hiking rates had driven the dollar higher over the past three weeks, but Tuesday's announcement hinted that a weak economy was still a risk, and many analysts talked down the chance of a rate hike.

Higher interest rates abroad can push down the dollar, as investors transfer their funds from American assets to overseas, where they can get higher returns on their investments.

Meanwhile, oil futures touched below $118 a barrel Wednesday, while gold dropped below $880 an ounce. Commodity-exporting countries whose currencies were buoyed as long as commodities shot higher, such as Canada and Australia, have seen the value of their dollars eroded.

The dollar rose to 1.0477 Canadian dollars from 1.0428, circling year highs. The Australian dollar, meanwhile, fell to its lowest point in more than four months, to 90.62 U.S. cents.

In other New York trading, the dollar climbed to 1.0602 Swiss francs from 1.0539 francs.

"It is not simply a dollar rally but a sell-off in the Europeans," said Woolfolk.

[setravis]

The US Dollar index closed just above its 200-day moving average Wednesday for the first time since October 2006, and also just above its high from mid-June.  The breakout of its trading range that had been in place since March is a win for Dollar bulls.

[setravis]

Dollar soars higher on euro zone woes
Friday August 8,2008
Dollar soars against major currencies as euro area struggles, commodities sell off


The dollar soared Friday in what analysts are calling a game-changing move as concerns about the deteriorating euro zone economy gripped investors and commodities sold off.
In late trading in New York, the euro came off its lows to $1.5013 from $1.5328 late Thursday. Earlier in the day, it sank as low as $1.5004. It is the highest point for the dollar since late February, and a rapid recovery from July 15, when the euro hit a record against the dollar at $1.6038.


"There's a real capitulation under way," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Conn. "In 24 hours it's gone from $1.55 to $1.50, which is highly unusual. That changes your game plan for the marketplace."

The euro also sank against the British pound and the Japanese yen -- both of which are also weakening against the dollar.

On Thursday, the European Central Bank and Bank of England left their key interest rates unchanged at 4.25 percent and 5 percent, respectively. ECB President Jean-Claude Trichet issued a warning on inflation and said economic growth figures for the second and third quarters of 2008 would be much weaker than in the early part of the year. He signaled that an interest-rate increase to counter inflation would probably not be forthcoming.

Higher interest rates can buck up a currency, as investors transfer assets where they can get better yields, while lower interest rates can weaken a currency.

The pound, meanwhile, recovered slightly $1.9198 after earlier selling as low as $1.9145, its lowest point since November 2006. On Thursday, the pound sold for $1.9436. But the dollar leaped to 110.24 Japanese yen from 109.45 yen, its highest level since January.

"This is payback time for the European currencies against the dollar," said Ashraf Laidi, currency strategist at CMC Markets. "These currencies have to retreat to better reflect the sharp deterioration in economic fundamentals in (the euro zone) region. This is not to say there's been an improvement in U.S. fundamentals."

Earlier in the week, the Federal Reserve maintained the benchmark federal funds rate at 2 percent.

Comments by ECB President Jean-Claude Trichet after Thursday's decision "confirmed that the window of opportunity for further rate hikes has been slammed shut by the cold blast of negative data releases that swept through the euro zone in the last few weeks," said Marco Annunziata, an economist at UniCredit in London.

Recent economic indicators from major euro zone economies such as Germany, France and Italy have painted a gloomy picture.

The ECB last month moved to cool inflation by raising borrowing costs for the first time in a year, by a quarter percentage point to 4.25 percent, while the Bank of England has left rates unchanged since April, when it reduced its benchmark figure by a quarter of a percentage point to 5 percent.

Crude oil futures, meanwhile, dropped below $116 a barrel, and oil-producing countries' currencies sold off. Gold is at two-month lows.

"Lots of investors have been on high commodity prices and a low dollar, and those bets are getting destroyed," Gilmore said.

The Canadian dollar, which leapt higher last fall on the back of surging oil and other commodities, is back down again to 12-month lows against the U.S. dollar, while the Australian dollar is back to mid-January levels. The New Zealand dollar is at 11-month lows.

The dollar rose to 1.0685 Canadian dollars from 1.0517, and hit a six-month high of 1.0837 Swiss francs before retreating to 1.0810 francs. On Thursday, the dollar bought 1.0625 francs.

[setravis]

Is This The Dollar Breakout?

August 8th, 2008 will be known for two events: the start of the 2008 Beijing Olympics and the massive, bullish breakout for the US dollar. The currency made its move across the board, taking out significant technical (and psychological) levels against most of its major counterparts and marking its biggest one-day advance on a trade-weighted basis in over five years.

Five months after testing a record low and through four months of congestive price action, fundamentals have slowly built up (though the US data hasn't exactly been encouraging) behind an eventual rebound in the massively oversold currency. With liquidity draining for the weekend, the market now has time to contemplate: is this the true trend reversal and how will this effect my trading in the long term?

Shifting Gears On Fundamentals

Getting to the point where traders and economists are debating whether or not we have entered a new bull leg for the dollar – where until recently the consensus was the currency would soon be replaced as an anchor to pegs and could lose its status as the world's leading currency to the euro – took time and a global economic slowdown that would ultimately leave the beleaguered US with the most impressive balance sheet.

Since last summer's subprime meltdown, the Federal Reserve has cut the benchmark lending rate by 325 basis points, the housing sector has entered a recession not seen since the Great Depression, and employment numbers have contracted for the longest period since 2005. With conditions like these, why would the greenback be on the verge of a major advance? The answer is simple. Because despite the United State's current predicament, the outlook for the world's largest economy is fundamentally better than that of its industrialized counterparts.

From a growth perspective, revisions to annualized GDP numbers show that the US contracted for the first time in six years through the final quarter of 2007. However, by the time this slowdown was confirmed, more timely data was already suggesting the worst has already passed with second quarter growth figures reporting 1.9 percent expansion. For a fundamental backdrop that has been completely overshadowed by consistently disappointing data, this broad reading alone has catalyzed confidence that recessions in certain areas of the overall economy will be leveled out by strength in others. In contrast, the forecast for other economies is deteriorating. The Euro-Zone GDP number due next week is expected to match its slowest annualized pace in four-and-a-half years as domestic spending falters and exports suffer from curtailed demand and unfavorable exchange rates. In the UK, the local housing recession is already the worst in recent history and it looks to worsen with time. Add to that, inflation that has stifled business activity and consumer spending; and projections for growth are low. Finally, there is Japan. The Asian giant has struggled since the late 90s financial crisis, and recently consumer spending and a housing slump has slipped into critical levels. To top it off, for the first time since 2001, the Japanese government's assessment of domestic growth was downgraded to 'weakening' – what many consider an admission that the economy has already entered a recession.

The Outlook

Today's dollar rally easily marks a technical turning point for many of the most liquid dollar-denominated majors (see Jamie's technicals for a full briefing on this); but the currency certainly hasn't cleared all hurdles. Technically, while EURUSD and GBPUSD have dropped below major support at 1.5300 and 1.9400 respectively, there is still resistance for the greenback on a trade-weighted basis. A look at the Dollar Index reveals the dominate trend from the late 2005 bearish trend reversal has yet to be tested. This will no doubt require significant momentum on the dollar's part to charge up enough strength to breach such a noteworthy level.

The fundamental scene is even more difficult to reconcile with a sustained dollar rally. While its major trade partners are just now catching the same cold that the US has been trying to shake, conditions in America are still worse. The housing recession is deepening, business investment has dried up, lending has frozen and now the consumer (the largest component for economic growth) is being assailed. Combine an unemployment rate at a four-year high and wage growth slowing to a two-and-a-half year low with inflation not seen in 17-years and we have sentiment near three decade lows. If the consumer sector falters, the chances for GDP to further rebound on the virtue of exports alone are slim. In turn, concerns of a recession would offer no confidence for rate hikes.

For the dollar to maintain its current trajectory and confirm a major trend change, the currency and economy will need to answer these issues. Regardless of the technical breaks in the majors, the dollar will need to break resistance in the trade-weighted index. For the long term, the fundamentals will need to back the dollar fully. Growth factors will grow increasingly important – specifically consumer spending and sentiment, business activity, trade and the housing market will need to show genuine evidence of a bottom. Ultimately, though, the true determinate will be interest rate expectations. Three quarter point hikes are scheduled for the coming 12 months, but such a major exchange rate event will need confirmation of just such a monetary policy change early in the forecast period. What's more, a Fed hike would need to outpace any hawkish ambitions from other central banks.