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US Dollar Begins Its Plunge, Euro Climbs
( Steve Johnson and Andrew Ball, Financial Times, November 7, 2004)
The dollar could slide still further, in spite of hitting an all-time low against the euro last week in the wake of George W. Bush's re-election, currency traders have said. . . . The dollar sell-off has resumed amid fears among traders that Mr Bush's victory will bring four more years of widening US budget and current account deficits, heightened geopolitical risks and a policy of "benign neglect" of the dollar. . . . Many currency traders were taken aback on Friday when the greenback fell in spite of bullish data showing the US economy created 337,000 jobs in October. . . . "If this can't cause the dollar to strengthen you have to tell me what will. This is a big green light to sell the dollar," said David Bloom, currency analyst at HSBC, as the greenback fell to a nine-year low in trade-weighted terms. . . . The dollar's fall comes as the Federal Reserve is widely expected to raise US interest rates by a quarter point to 2 per cent when it meets on Wednesday and to signal that it will continue with a measured pace of rate increases. . . . Speculative traders in Chicago last week racked up the highest number of long-euro, short-dollar contracts on record. Options traders have reported brisk business in euro calls - contracts to buy the euro at a pre-determined rate. . . . However, the market has been rife with rumours that the latest wave of selling has been led by foreign governments seeking to cut their exposure to US assets. . . . India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors. . . . China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

posted by Lorenzo 1:09 PM