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US Dollar Index Hits 3 Month Low
Old 08-03-2010, 11:11 AM   #1
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US Dollar Index Hits 3 Month Low

Dollar hurt by economy worries

While we have been consumed with hot weather, dress codes and such the USD has fallen out of bed. Very near parity with the CAD, back to $1.34 against the euro and $1.61 against the pound. One USD gets you only 85 yen.

There is an intersting quote in the article linked above that relates to asset prices other than currencies.

""We're seeing a disconnection as U.S. data stays weak yet risk appetite is strong. Weak U.S. data will translate into risk aversion at some point," said Tom Levinson, currency strategist at ING."

In other words, this guy Tom thinks US investors are skating on thin ice.

Ha

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Old 08-03-2010, 11:42 AM   #2
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The article begins,

Quote:
LONDON -- The dollar index hit a three-month low on Monday, hurt by worries that the U.S. economy's recovery is losing steam, while the high-yielding Australian dollar reached a three-month high, buoyed by a rise in equities.
(emphasis mine)

So, it has not been this low since May. Interesting. I can't see changing my asset allocation based on this event.

Various forum members have posted that they think we are in for further market crashes soon. I have no prediction and my feeble attempts at market timing are usually wrong. So, I try not to do that.
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Old 08-03-2010, 11:58 AM   #3
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Ah, I would interpret the data a touch differently. I think the USD dropping tells us the panic attack of the May/June sovereign "crisis" is firmly behind us and investors are no longer so worried about safety. The USD was the flight to quality beneficiary and now nobody cares anymore.
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Old 08-03-2010, 12:08 PM   #4
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Originally Posted by brewer12345 View Post
Ah, I would interpret the data a touch differently. I think the USD dropping tells us the panic attack of the May/June sovereign "crisis" is firmly behind us and investors are no longer so worried about safety. The USD was the flight to quality beneficiary and now nobody cares anymore.
That has to be a factor, but IMO it is basically impossible to know why something happens. I can't see that the CAD should be strongly affected by what was mainly a European phenomenon, especially since Canadian state and corporate finances are in relatively good shape.

So there might be an element of realization that the USD may be vulnerable and in fact not much of a safe haven after all.

Ha
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Old 08-03-2010, 12:20 PM   #5
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Old 08-03-2010, 12:23 PM   #6
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Glad we went to England when we did. The pound was at about $1.51 while we were there.
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Old 08-03-2010, 12:37 PM   #7
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I agree with brewer, I think the lower USD is just a sign that investors are willing to take some risk again. Risky assets have done very well in the last month or so which proves that investor's appetite for risk is back (for now). Besides, the dollar had rallied very strongly since last November and we were due for a pullback IMO. I think that the currencies of countries that are raising or poised to raise interest rates are attracting yield chasers.
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Old 08-03-2010, 01:19 PM   #8
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Quote:
Originally Posted by haha View Post
That has to be a factor, but IMO it is basically impossible to know why something happens. I can't see that the CAD should be strongly affected by what was mainly a European phenomenon, especially since Canadian state and corporate finances are in relatively good shape.

So there might be an element of realization that the USD may be vulnerable and in fact not much of a safe haven after all.

Ha
As you say, it is impossible to really know why the currency markets do what they do. I think Canadistan is much smaller and the currency is a lot less liquid. If you need to run to safety with many billions, Canada won't do it.
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Old 08-04-2010, 09:19 PM   #9
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Gee, I remember 2 USD per pound and 1.50 per Euro not that long ago.

It's funny how price movements in a particular direction gain attention even as larger moves in the opposite direction go unnoticed.
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Old 08-04-2010, 09:50 PM   #10
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I think the US$ flight to safety is a a factor in the US$ strength 3 months ago. Also, there appears to be a corollary - stock market up; $ down.

When the the $ ceases to be a safe haven; then things should be interesting. The question is if the $ isn't safe haven; where will money go for safety?

So, I can only imagine that when things are going well here in the USA the $ will get even weaker. The cause? - high balance of trade deficit, Fed debt, deficit and Federal reserve interest rates not high enough?
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Old 08-05-2010, 07:09 AM   #11
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I think the US$ flight to safety is a a factor in the US$ strength 3 months ago. Also, there appears to be a corollary - stock market up; $ down.

When the the $ ceases to be a safe haven; then things should be interesting. The question is if the $ isn't safe haven; where will money go for safety?

So, I can only imagine that when things are going well here in the USA the $ will get even weaker. The cause? - high balance of trade deficit, Fed debt, deficit and Federal reserve interest rates not high enough?
I an overwhelmed by your cogent arguments. DW, everyone into the cellar (standard grandma drill)! Guard the door while I go stockpile MREs, ammunition and dog food. If I don't knock in the right pattern, start shooting through the door.

Seriously, Dex, the world and the macroeconomy are incredibly complex. We armchair economists cannot possibly hope to know what will happen in the future. I see you heading into a fatalistic spiral, conviced that the only possibility is a terrible outcome. I guess I am not that confident in my prognostication. Might it happen? Sure. But there are lots of other possibilities, many of which are a good deal more likely. Prepare as best you can for a range of potential outcomes and get on with life. Isn't the weather nice in your neck of the woods?
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Old 08-05-2010, 08:09 AM   #12
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The trade weighted US$ has been steadily declining in value for decades, and it is in everyone’s (as in most countries in the world) best interest that it continue to do so.

A strong US$ is not in anyone’s best interest, least of all the US.

Just so we’re clear, the greatest beneficiary to a declining US$ is the US.

Sudden jumps in the value of the US$ are bad news – they are reactions to adverse events or heightened risk. A return back to the curve is good news.

Looking forward, investors might want to broaden their views, not focus only on Euro, Yen or exchange weighted US$ and look toward the real and remembi. That's where we really need to see a declining US$.
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Old 08-05-2010, 08:55 AM   #13
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Quote:
Originally Posted by brewer12345 View Post
I an overwhelmed by your cogent arguments. DW, everyone into the cellar (standard grandma drill)! Guard the door while I go stockpile MREs, ammunition and dog food. If I don't knock in the right pattern, start shooting through the door.

Seriously, Dex, the world and the macroeconomy are incredibly complex. We armchair economists cannot possibly hope to know what will happen in the future. I see you heading into a fatalistic spiral, conviced that the only possibility is a terrible outcome. I guess I am not that confident in my prognostication. Might it happen? Sure. But there are lots of other possibilities, many of which are a good deal more likely. Prepare as best you can for a range of potential outcomes and get on with life. Isn't the weather nice in your neck of the woods?
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Old 08-05-2010, 09:48 AM   #14
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Quote:
Originally Posted by brewer12345 View Post
I an overwhelmed by your cogent arguments. DW, everyone into the cellar (standard grandma drill)! Guard the door while I go stockpile MREs, ammunition and dog food. If I don't knock in the right pattern, start shooting through the door.

Seriously, Dex, the world and the macroeconomy are incredibly complex. We armchair economists cannot possibly hope to know what will happen in the future. I see you heading into a fatalistic spiral, conviced that the only possibility is a terrible outcome. I guess I am not that confident in my prognostication. Might it happen? Sure. But there are lots of other possibilities, many of which are a good deal more likely. Prepare as best you can for a range of potential outcomes and get on with life. Isn't the weather nice in your neck of the woods?

I'm with Brewer, the odds of good or modestly good outcomes are greater than the odds of bad outcomes.

Didn't Teddy Roosevelt say that 75% of the problems you see headed your way will get derailed before they reach you, you just don't know how/when the derailment will happen?
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Old 08-05-2010, 07:45 PM   #15
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Quote:
Originally Posted by brewer12345 View Post
Seriously, Dex, the world and the macroeconomy are incredibly complex. We armchair economists cannot possibly hope to know what will happen in the future. I see you heading into a fatalistic spiral, conviced that the only possibility is a terrible outcome. I guess I am not that confident in my prognostication. Might it happen? Sure. But there are lots of other possibilities, many of which are a good deal more likely. Prepare as best you can for a range of potential outcomes and get on with life. Isn't the weather nice in your neck of the woods?
+1

I also sense that relative decline is being confused with absolute decline.
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Old 08-06-2010, 03:00 AM   #16
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It's the same everywhere...

The more swivel-eyed, anti-Euro papers in Europe - 2/3 of whom are in the UK which doesn't even have the Euro as its currency - are always quick to jump on any fluctuation in the value of the Euro as proof that it is bad.

Euro up? "Crisis for Europe's exporters as currency soars, making them uncompetitive."
Euro down? "Euro in danger, we wheel out smug pundits to say they saw it coming all along."
Euro not moving? "The world is passing Europe by, the Euro is an irrelevance."

It must be great to be paid to write that (A), (not A), and (null) are all bad. No thought or expertise required. No wonder people are fleeing the papers.

Under the previous government in the UK, I saw the same (anti-governing party) paper run the following headlines within three months of each other:
"Today's rise in interest rates will cut exports and cost British jobs. Industry group spokesperson says rates must be cut soon."
"Today's cut in interest rates will hit people who worked hard all their life and live off their savings. Retiree group spokesperson says the Bank of England must raise rates to allow these people a decent standard of living."
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