The U.S. Dollar Continues to Slide
The downward tumble that the U.S. dollar has seen as of late has begun to pick up speed while inflation,
lowering interest rates and the huge federal budget deficit continue to cripple the currency. Sadly, there
is no end in sight when it comes to any of those affecters.
The dollar has hit its lowest level since August of 2008 according to the ICE U.S. Dollar Index. Following
suite with last week, it saw a drop of almost a full 1% against a wide range of currencies again this week
The dollar is being forced in to a decline because of the United States’ low interest rates when compared
with other rates around the world seeing their interest rates climb. With low interest rates the return on
cash invested will also be low.
Alessio de Longis, the overseer to the Oppenheimer Currency Opportunities Fund was quoted saying
that, “the dollar just hasn’t had anything positive going for it.” The dollar is facing some increasingly
difficult circumstances and the outlook for next week looks quite glum.
Next week the Federal Reserve’s committee to set rates is expected to announce that the short-term
rates in the United States will continue to barely hold themselves up above zero for quite a while to
come. There is a press conference scheduled for next Wednesday by Ben Bernanke, Fed Chairman. This
will be the first press conference ever to be held by the Fed after a policy-setting meeting
While the imminent bad news from the Federal Reserve will obviously do nothing but hurt the dollar
further, it’s not the largest factor affecting the dollar. Fearful speculation regarding the monstrous
budget deficit the U.S. is seeing is exacerbating the magnitude of the currency selloff.
Earlier this week the Standard & Poor’s gave an ominous warning that it was considering downgrading
the AAA bond rating that the U.S. government carries, stemming from concern over the Obama
administration and Congress’ ability to come to an agreement to reduce a significant portion of the
deficit; and it doesn’t stop there.
After years of investing quite heavily in the U.S. dollar, Chinese government officials are continuing to
claim they are considering diversifying the $3 trillion of currency reserves in directions away from the
While the dollar struggles, U.S. exporters are smiling as their products are becoming more competitive
in price. This is allowing manufacturers and technology companies to seeing accelerated growth in their
bottom lines; a positive in the otherwise dismal and slow moving recovery of the economy.
While exporters are enjoying the helping hand, U.S. consumers will be paying more at the gas pump and
for other oil imports as the exporters of oil are demanding higher crude oil prices to make up for the
declining value of the United States dollar.
“The U.S. historically has only gotten active in the currency market when the dollar moves were spilling
over into other assets,” “American voters care a lot more about stocks and their 401(k)s. If the dollar
starts to undermine that, that’s when the Treasury Department pays more attention,” says JPMorgan’s
chief markets strategist, Rebecca Patterson.
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