More Ominous news about the Dollar. Dollar trades at 14 year low against GBP 1:1.97
Most analysts predict that by the end of the year the dollor will be at 1:1.35 against the Euro and by the end of next year the dollar will be at 1:1.40 against the Euro and 1: 2.0 against the British Pound. Scary stuff but it's the truth. Let's all keep our fingers crossed that our very own mongering Nostradamus' are correct. Even though it's not likely based on reality.
The dollar's slide: How far, how hard?
The currency sank about 2.5 percent against the euro in the last 5 sessions. More losses may be coming.
By Katie Benner, Fortune reporter.
November 30 2006: 9:26 AM EST.
(Fortune Magazine) -- U. S. Currency traders gorged on Thanksgiving turkey and took a half day last Friday while the rest of the world quietly bet against the dollar.
At first, it looked like a handful of speculators were taking advantage of light trading volume, which makes it easier to move a market up or down. But then more players started lining up against the greenback, too, and the worries hit harder than post-holiday indigestion.
The dollar has tumbled about 2.5 percent against the euro in the five sessions through Tuesday. Although the greenback came back a bit Wednesday, the dollar's near its weakest against the euro since March 2005. The dollar also fared badly against the British pound, though it's done slightly better against the lowly Japanese yen.
"With the dollar debacle, the health of the economy, current and future, is on trial," said Brian Wesbury, chief economist at First Trust Advisors.
And he, like many other traders and strategists, sees a weaker dollar in the months to come thanks to a combination of slower economic growth, the possibility of interest rate cuts from the Federal Reserve and long-term trends in international currency markets.
Currencies typically have a six- to seven-year cycle of adjustments, said Quincy Krosby, chief investment strategist at Hartford Financial. "If you look at February 2002 as the strongest point in the cycle, I do think [the dollar] will ease a bit more. But that's also just part of the adjustment process that began [almost seven years ago] and is continuing."
Many observers have been bearish on the dollar since the start of 2006, when the so-called yield curve in the Treasury bond market kept inverting, meaning that investors got a better return on the short-term, two-year government bond than on the long-term, 10-year Treasury note. That's the opposite of how yields usually behave - and an inverted curve preceded the nation's last two recessions.
But back at the start of the year, most economists said it looked unlikely the United States was headed for a recession this time - that the economy would not stumble on a housing slump, rising interest rates in Europe or a series of rate hikes by the Federal Reserve. Now, some fear that those comforting predictions may not hold true.
Foreign banks, for example, may be deciding that the United States is getting too risky because the U. S. Economy doesn't look as attractive with sluggish growth ahead, said Naomi Fink, director of foreign exchange strategy at BNP Paribas.
"It reminds me of the time surrounding the tech boom when many equity analysts were saying that P / E ratios were irrelevant," said Fink, referring to the relationship of stock prices to corporate earnings. "Similarly, we shouldn't have discounted arguments for a slowdown in the U. S. Prior to this recent move, currency traders were ignoring bad data, or only looking at the good elements of the bad data."
The bad data includes the housing slump, said money manager Hugh Moore, a partner at Guerite Advisors, who's forecasting a recession sometime in 2007.
"The jobless recovery happened after 2001 because of home equity," said Moore. "Wages stagnated, but people didn't want to give up their lifestyles." So instead, they borrowed against the value of their homes. He estimated that home equity withdrawals in 2004 and 2005 totaled about $1.4 trillion, and that two-thirds of that fueled consumer spending. Consumer spending in turn fuels more than two-thirds of economic growth, so its importance can't be underestimated.
Moreover, Wesbury said that more rate hikes from the Fed remain a possibility, or at least the central bank won't cut rates anytime soon. Wall Street has been anticipating a cut for months, hoping that the Fed would lower the benchmark rate to keep the economy from slowing too much.
But Fed Chairman Ben Bernanke said in a speech Tuesday that while growth should pick up next year, inflation remains a "worrisome" threat, which could mean that the Fed's next move on rates is a rate hike, and not a cut.
Much of the recent betting against the dollar has been on the expectation that a weak U. S. Economy would force the Fed to cut rates. Lower rates make the dollar less attractive relative to other currencies.
Meanwhile, Wednesday's upward revision to third-quarter economic growth indicates that economy is growing modestly, while a key inflation gauge dipped.
That should ease short-term concerns about a recession, but, as Krosby points out, there was no pop for the troubled greenback.
"The GDP numbers were upwardly revised, but there was immediately no significant strengthening in the dollar. If the market instinctively believed the economy was chugging along well, there at least would have been a knee jerk reaction."
Perhaps the dollar's muted rebound against the euro Wednesday can be traced to the news that new home sales fell a larger-than-expected 3.2 percent in October, quelling hopes that the worst of the real estate slump was over.
"What we really should focus on is that fact that the Americans were on holiday and foreigners decided to sell," said Axel Merk, manager of the Merk Hard Currency Fund, which has $47 million under management, referring to the dollar's recent drop. "Given the extent to which we're dependent on foreigners to prop up the dollar because of our current account deficit, that's worrisome."
"A dollar decline is in nobody's interest, but it's highly overdue and will happen at some point," Merk said.
Dollar hits lowest point in 14 years as it plummets towards 50p
Frantic trading as fears of US housing meltdown grow.
Britons will head across Atlantic for bargains.
Ashley Seager, economics correspondent.
Friday December 1, 2006
The Guardian.
The dollar continued its seemingly unstoppable decline on the foreign exchanges yesterday, hitting a 14-year low at just below $1.97 to the pound as analysts predicted the two-dollar pound mark may soon be breached.
The dollar was last this low against the pound in September 1992, when Britain was forced out of the European Exchange Rate Mechanism, the euro's forerunner.
The news is likely to further boost airline bookings from bargain-hungry Britons rushing off to the United States for a pre-Christmas shopping bonanza.
The greenback fell more than 1% , or nearly 2.5 cents, in frantic trading in the world's dealing rooms after investors were panicked in particular by a key survey showing business activity for November in the US midwest contracted for the first time in three and a half years. The market had been expecting modest growth.
The survey by the National Association of Purchasing Management Chicago suggested the meltdown in the country's once-booming housing market was spreading, dashing hopes that momentum elsewhere in the economy would outweigh falling housing prices.
David Durrant, chief currency strategist at Bank Julius Baer in New York, said: "The trend is for a weakening dollar and reports like Chicago PMI provide a good excuse for investors to keep selling the currency. The report is not a complete disaster but it validates people's views that the economy is softening and therefore rates will remain low or even get lower. That's not supportive."
The dollar has fallen from $1.90 to the pound in just over a week - a drop of 3.5%. It has also fallen against all other currencies and yesterday hit a 20-month low against the euro of $1.326. The dollar has in fact been under pressure for the past five years because of the United States' giant current account deficit of 6.6% of gross domestic product. It has fallen more than 30% against a basket of currencies but unexpectedly rose through much of last year. But its renewed downward trend is now established and many analysts think it has further to run.
The latest trigger is that a weakening economy means the US central bank, the Federal Reserve, is now likely to keep interest rates steady at 5.25% or begin cutting them, maybe as soon as next spring.
This reduces the dollar's attraction to investors since the European Central Bank is widely expected to continue raising rates from their current 3.25%. The Bank of England, which has raised rates twice in recent months to 5% , is expected to either keep rates steady or perhaps raise them again early next year.
The falling dollar should help US exporters regain competitiveness in overseas markets because their goods will be cheaper.
It should also push up the price of imports, discouraging Americans from buying them. This could gradually help to narrow the country's trade and current account deficits but few analysts expect that to happen soon. However, higher inflation could also persuade the Fed to raise interest rates at a time when the economy is slowing.
Other data that spooked the markets yesterday showed that core consumer inflation remained at 2.4% for the second month in a row, defying expectations that it would fall back further and making the Fed's job more difficult, as did a fresh rise in oil prices, which took them up to $63 a barrel for US light crude futures, up from $58 barely a week ago.
Badboy
Weak US 'to hit global growth'
Weak US 'to hit global growth'
The US housing market is going through a turbulent period.
World economic growth will slow to its weakest level in four years in 2007, dragged down by a US slowdown, a global think tank has predicted.
Growth will slow to 2.5% in 2007 from 3.2% this year, the Organisation for Economic Cooperation and Development (OECD) said.
But a strong performance from Europe and Asia will offset US weakness.
"Rather than a major slowdown, what the world economy may be facing is a rebalancing of growth," the OECD said.
It added that as a result of a "soft landing" for the US economy the slowdown would be nowhere near as bad as the "major" problems experienced in 2000, when most economies were overheating.
The group predicts US growth will come in at 3.3% this year before slackening to 2.4% in 2007 - mainly as a result of the country's weak property market, which the OECD expects will see a further fall in house building.
'Rebalancing'
"Recent developments point to an unwinding of cyclical differences, with activity having slowed in the United States and Japan, and gathered speed in Europe," OECD chief economist Jean-Philippe Cotis said.
"In the euro area, recent hard data as well as business and consumer confidence suggest that a solid upswing may be underway.
"Growth should remain buoyant in China, India and Russia and other emerging economies."
In contrast to the expected deceleration in the US, the OECD's twice-yearly report revised up its expectations for the eurozone to growth of 2.6% for this year and 2.2% next year.
The report also suggested that the European Central Bank would have to carry on raising rates until they reached a peak of 4% in 2008. Euro zone rates currently stand at 3.25%.
Meanwhile, across the Atlantic the OECD said the US would leave rates on hold at 5.25% throughout 2007, before cutting the cost of borrowing in 2008.
But it warned that any risk of higher inflation would mean higher US rates.
