Notice that little dollar chart on the right hand side? Yea, that is there to track the current USDX index (Dollar Index). Over the last several months the dollar has been falling in value, in large part to all the printing the Federal Reserve has done, and the decline has quickened in recent months.
As the move downward take place, other governments in the world will migrate away from the dollar (bonds) as an investment, also as a means of transaction, in return of more stable investments. One has to ask when that is go to happen.
For now, any attempt to put a floor under the dollar’s exchange rate is expected to remain rhetorical, with actual market interventions by central banks unlikely — especially if China won’t change its currency policy.
But with the dollar sagging against the euro, the yen and a host of other peers, policymakers around the world are voicing worries a weak dollar will dampen their still-shaky economic recoveries. A falling dollar hits exporting countries because they find it more difficult to sell their products to the U.S.
A weak dollar also raises the cost of commodities such as oil, which are priced in the U.S. currency.
So far, currency traders have largely ignored escalating rhetoric from government officials. They pushed the euro above $1.50 on Wednesday for the first time in 14 months and it has hovered round that level all day Thursday.
And the dollar could get weaker yet, if the stock market rally has further legs. That’s because dollar investments were used as a refuge as markets tanked. Now that markets are rising, that money is flowing back out of the dollar safe haven into stocks or emerging-market currencies.
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For the U.S. to agree to intervene, however, the current dollar decline will have to turn into a rout. President Barack Obama’s administration says it wants a strong dollar — but the fact is, a weaker dollar helps exports and the U.S. recovery.
“Unless the dollar collapses, the U.S. is unlikely to feel compelled to adjust its policy levers,” said Bank of New York Mellon currency strategist Neil Mellor.
And what happens if the dollar does weaken further, will there be a rush away from it?
Will the US step in to place a floor?
Inflation?
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