Dollar Falls Below 108 Against Yen [USD]
This morning in Asia, the US dollar weakened heavily against the yen as investors pared back exposure to risky trade. The dollar-yen pair fell below 108 level and hit a new 2 ½ -year low of 107.54. This was compared to yesterday’s close of 108.46.
The dollar lost ground against its European counterparts too. The dollar slumped to a new record low of 1.4967 against the euro and 1.0887 against the franc. Against the pound, the dollar fell to a multi-day low of 2.0764. The dollar had closed yesterday’s deals at 1.4850 per euro, 1.1013 against the franc and 2.0620 versus the pound.
Increasing concern about the US economic outlook may induce the Federal Reserve to lower interest rates in December, and exert downward influence on the dollar. A weak dollar encourages demand for dollar-priced commodities because they become more attractive to investors using stronger currencies. Consequently, commodities such as gold and oil rallying in the recent weeks due to the extended slide witnessed in the value of the greenback.
Since its peak in 2002, the U.S. dollar has depreciated against most majors. The devaluation of the dollar was considered to be inevitable by many analysts, and the anticipated development could engender a global economic crisis, given the buck’s status as a reserve currency.
However, White House officials are tight-lipped about the dollar’s weakness. U.S. officials continue to reiterate that a strong dollar is in the best interest of their nation. While speaking to Chinese and U.S. business leaders in New York early this month, Henry Paulson, the U.S. Treasury Secretary, reiterated his commitment to a strong dollar. Paulson also said the value of the currency should be determined competitively based on economic fundamentals.
The recent down leg of the dollar is due to concerns over the credit crisis impacting the banks and markets. The dollar index, which tracks the U.S. dollar against the currencies of 6 major trading partners, has been on an extended downtrend since 2002 and is currently trading near an all time low of 75.40.
Wachovia Securities expects the downward trend in the value of the dollar that has been place for nearly six years to continue, as the recent dislocation in credit markets has significantly reduced the new issuance of structured fixed income product market, giving foreign investors fewer U.S. securities to purchase.
Additionally, the interest rate environment in the U.S. and the rest of the world is supportive of a secular dollar decline. The U.S. central bank is on an easing spree, while most other global central banks have been either holding rates steady or showing an inclination towards tightening. Despite sporadic corrections, the dollar may be heading lower until the end of next year, when domestic economic growth in the U.S. is expected to pick up.
The US markets were closed on Thursday on account of the Thanksgiving Day holiday.
Taken from: MoneyForex.com
Source: RTTNews.com
