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Dollar hits new multimonth low vs euro, pound, yen


SnyderShrugged

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NEW YORK (AP) - The dollar kept falling Friday, notching fresh multimonth lows against the euro, pound and yen as a warning that Britain's debt level may result in its credit rating being cut ricocheted into worries about the massive U.S. deficit.

The 16-nation euro rose to $1.4015 in morning trading from $1.3889 in New York late Thursday—its first time above $1.40 since Jan. 2.

The British pound rose to $1.5916 from $1.5890, peaking at $1.5945 earlier in the session, its highest point since Nov. 6.

Meanwhile, the dollar edged up to 94.51 Japanese yen from 94.23 yen—after earlier falling to 93.82, its lowest point since Feb. 23.

On Thursday, Standard & Poor's said Britain may have its rating cut because of rising debt levels. Though the ratings agency reaffirmed the country's actual long-term credit rating at "AAA," it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

Because Britain is pursuing similar policies to the U.S.—with both the Bank of England and the Federal Reserve injecting billions of dollars in their economies by buying assets from banks—the move also weighed on U.S. assets and the dollar. Treasurys sold off Thursday, and continued to do so Friday.

S&P's announcement "wound up creating more problems for the U.S. dollar than for the British pound," HSBC analysts said in a research note.

"The problem for the U.S. is particularly acute because of its reserve status," said UBS analyst Brian Kim in an e-mail to investors Friday. Major holders of U.S. debt, such as Middle Eastern sovereign funds and the Chinese government, have not been shy about calling the U.S. out for what it sees as policies that will trigger inflation, shrinking the value of their Treasury holdings.

The Fed in March said it planned to buy up billions in long-term Treasurys and $1.25 trillion in mortgage-backed securities, flooding the money supply.

"The dollar has weakened as dollar bears have now added concerns on U.S. credit ratings to their arsenal," Kim said.

Earlier this month, the Obama administration hiked its forecast for this year's federal deficit to $1.84 trillion. The deficit is approaching $1 trillion for the budget year that began Oct. 1.

Big deficits mean the government has to borrow more, which could put its credit rating at risk. They can also put upwards pressure on inflation, thus cutting the purchasing power of the dollar.

In other trading, the dollar fell to 1.1235 Canadian dollars from $1.1404 and slid to 1.0833 Swiss francs from 1.0936 francs late Thursday.

http://www.breitbart.com/article.php?id=D98BCFJO0&show_article=1

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I'm just curious about the perspective of the article. Maybe it's just the highlights.

We gained on the yen. Isn't the Japanese Economy the second biggest in the world? We lost on the Canadian dollar, but we trading at even not too long ago?

It just seems like the article is taking a mixed day currency trading and treating it like it's the end of our economy. Am I wrong (quite possible as I don't follow currency markets very much)?

as for what it has to do with our spending, I note the British are "in trouble for doing what we're doing" but they are gaining in the exchange rates. Could it be they are not as linked causally as being portrayed and have a more correlational relationship?

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I'm just curious about the perspective of the article. Maybe it's just the highlights.

We gained on the yen. Isn't the Japanese Economy the second biggest in the world? We lost on the Canadian dollar, but we trading at even not too long ago?

It just seems like the article is taking a mixed day currency trading and treating it like it's the end of our economy. Am I wrong (quite possible as I don't follow currency markets very much)?

as for what it has to do with our spending, I note the British are "in trouble for doing what we're doing" but they are gaining in the exchange rates. Could it be they are not as linked causally as being portrayed and have a more correlational relationship?

I think it was in the theme of the announcement that the US may lose our AAA credit rating which would lead to losing reserve currency status, which will lead to, well, a freaking mess even worse than we see now.

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I'd imagine interest rates will start skyrocketing very soon to balance out this spending spree. It's the only way the dollar will ever be worth anything again. Problem is, nobody will be able to afford to borrow........or lend.

Pick your poison: Inflation or stagnation.

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I'd imagine interest rates will start skyrocketing very soon to balance out this spending spree. It's the only way the dollar will ever be worth anything again. Problem is, nobody will be able to afford to borrow........or lend.

Pick your poison: Inflation or stagnation.

Exactly, this is what I have been warning people about on here for months. The problem with this massive debt that we are racking up right now is that it is FURTHER paralyzing credit markets. Frozen credit markets were the initial cause of this economic downturn but unfortunately EVERYTHING that the government has been doing since November is just making this problem much worse. How the government can think its a good idea to rack up unimaginable levels of debt while the worldwide credit markets are in shambles is beyond me.

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I think it was in the theme of the announcement that the US may lose our AAA credit rating which would lead to losing reserve currency status, which will lead to, well, a freaking mess even worse than we see now.

By the same rating agencies that contributed greatly to the current situation by over-valuing the mortgage-backed security bundles?

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I note his part from the post story on this today:

"A growing number of countries have had their sovereign ratings tarnished. Since January, Ireland lost its AAA rating with S&P, India's credit outlook was downgraded to negative from stable and Latvia's debt is at junk status. Iceland lost its triple-A rating last year, and Spain, Portugal and Greece have had their ratings taken down a notch.

The United States has stayed out of that club, and actually had its rating reaffirmed by S&P in January. Many analysts argue that the odds of a downgrade are remote for several reasons. The U.S. government can print money to finance debt. The dollar is a global reserve currency, which helps sustain demand for U.S. debt securities. And according to S&P, even in a worst-case scenario, the size of the government's debt in relation to the GDP would still be in line with that of triple-A countries such as Germany and France. "

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/21/AR2009052104401.html?hpid=sec-business

So long as the U.S. dollar is the currency of choice for world banks' reserves, our credit rating will stay as is. We can "print" more with a key stroke. The bigger threat is what we will have to do to make sure that stays true. But the threat of a downgrade in credit rating because people don't think we will pay them back? That seems like a dubious assertion. Will what we pay them back with being worth as much as we barrowed in terms of purchasing power...now that's the question worth asking. It may be the last question is our undoing, but I doubt it will be the credit rating.

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so, any of the supporters of government spending and debt still feel that same way after reading this?

I'm not a big supporter of deficit spending or debt, but this article doesn't establish any link between those and the value of the dollar vs. other currency.

It talks about how those things affect inflation, which is not at all the same thing (and still really low).

What's more, I've read that the dollar dropping is largely due to investors returning to the markets (and thus moving out of the safety of the dollar), which I think most would see as a good thing.

Such a theory would be supported that during the recent crisis, while the market plummeted, the dollar actually strengthened compared to the Euro, for instance.

What's more, I have yet to hear anyone, ever, explain why the average American should care how many ounces of beer his dollar can buy in Germany, unless he is going to Germany.

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