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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 08/08/2008 : 18:35:14
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Our nickels gained in value today. No, I'm not talking about their melt value (that's tanking fast) but rather since the value of the dollar increased so did they. One way of looking at it at least. But how long it will last is anyone's guess.
August 8, 2008, 3:50 pm
Fed Moves Propped Up Dollar
One year after the siege in money markets began, the Federal Reserve’s ground-breaking response has paved the way for the dollar’s biggest rally in years.
From outsized rate cuts — 1.25 percentage points alone in January — to massive liquidity injections and speeches directly addressing the greenback, the U.S. central bank has given currency investors a lot to digest in the past 12 months.
Some market watchers say its expanded role has helped the U.S. move closer to recovery from the financial market crisis, just as the rest of the world moves further away. And that is helping the U.S. dollar, which climbed to levels unseen since the start of 2008 against the euro Friday.
Moreover, the U.S. currency’s losses on the foreign exchange market through July was part of a broad correction, now complete, say analysts. It served to ease global imbalances. As Federal Reserve officials like to point out, the dollar was overvalued in the late 1990s and early 2000s.
But the euro is overvalued at this point. While the Fed’s actions have played a role — the massive 3.25 percentage points in rate cuts since September sent investors in search of higher yield — they have also provided the dollar with the backdrop necessary to find its proper place against the common currency.
“The fact that the Fed is there supporting the financial system, that in itself is helping the dollar,” said Divyang Shah, senior foreign exchange strategist at Commonwealth Bank in London. The dollar is well positioned to gain off of euro-zone difficulties and ECB rate cuts down the line.
While global imbalances remain an issue, the dollar has done its part to solve the problem, say analysts. The dollar’s decline through mid-July has been a boon to the U.S. economy, providing a rare ray of light for the export and tourism industries amid the prevailing housing and financial sector gloom.
It has helped to address global imbalances by shrinking the U.S. current account deficit, the broadest measure of a nation’s trade and investment positions. The U.S. deficit narrowed to 5% of GDP at the end of the first quarter 2008 compared with 7% in the fourth quarter of 2005.
Once the housing market corrects — whenever that will be — and money markets improve, the Fed’s expanded role isn’t expected to stick. Many think it will take at least a year for conditions to return to normal. Until then, the Fed still has time to bump up the buck even more. –Riva Froymovich
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Nickels big gain today!
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