US dollar 'will keep falling' Heather Stewart Sunday November 26, 2006 The Observer The US dollar has reached a 'tipping point' as foreign exchange markets wake up to the threat that the Federal Reserve will have to slash interest rates in the new year to stave off recession, analysts say. After a sharp sell-off on Friday took the greenback to 18-month lows against the euro, and pushed the pound to $1.93, economists warned that there was worse to come for the US currency. 'We are just at the start of what we think will be a downtrend for the dollar - a tipping-point has probably been reached,' said Tim Fox, currency strategist at Dresdner Kleinwort Wasserstein, who expects sterling to hit $2 within the next three months. The euro has been the main beneficiary. The European Central Bank is expected to continue raising interest rates into next year amid strong growth in the eurozone economies, while the Fed has left rates unchanged at 5.25 per cent since June. 'Steadily, the US dollar will decline through 2007, but probably at a faster pace in the second half of the year, as people realise the Fed is going to have to cut rates,' said Paul Mackel, currency strategist at HSBC. Senators on Capitol Hill would like to see China allow its currency, the renminbi, to appreciate further against the dollar, making Chinese imports more expensive; but the chances are low.
No country can keep its currency afloat with a huge national debt and an enormous trade imbalance. It is only a matter of time before the US dollar will no longer play a paramount role in world finances/banking. Sad.
Yeah, I agree with that factor. The greenback is not going to do well. Especially with China in the spotlight, the war, and other factors. The only posiive which might reset the factors again might be worldwide recession. In my opinion, US is becoming what is Germany, Spain and England is now. Those countries once a power houses of the world are not any more, US is these days that power house. But the ball might go to the east, and China will become the power house. US will become what european nations are now. Although this mightt not happen for couple of decades but in my eyes it is eminent. Until then party on Japan's and China's money lke it is 1955.
some excerpted comments from dailyfx website â In the last two trading days, the EUR/USD has surged over 200 points. The currency pair is now trading above what we suspect is the European Central Bankâs comfort zone. With only 7 trading days to go before the ECB meeting, if the EUR/USD does not fall back below 1.30, the central bank has no choice but to signal to the market that the December rate hike will be their last and that 3.50 percent interest rates is the peak. Not only does the strong Euro pose a risk to growth, but it also relieves inflationary pressures, which will give the ECB a good reason to shift gears. German exporters actually attempted to downplay the move by saying that they have no problem with the Euro above 1.30, but they do want to see the ECB take action if the currency manages to rally up to 1.40. - -Over the past 20 years, historical analysis indicates that from December 1st to December 31st, the euro appreciated against the U.S. dollar 15 out of 20 times, which is roughly 75 percent of the total sample. The seasonality is stronger if we zoom into the last 12 years where the currency appreciated 10 out of the 12 samples. (Synthetic euro prices were used prior to January 1999). There are many reasons to explain this, but the most obvious may be year end repatriation out of US dollar assets. More specifically, the data indicates that the Euro gained on average, 3 percent during the positive months and lost just 1.41 percent during the negative months-
Well, I believe that greenback is going to get killed. My view this is because FED will have to lower rates. Maybe in the next 2-3 sessions? Any thoughts?
One more meeting in December, i think they leave rates unchanged. I think first signs of a rate cut are possible by early 2007 sometime.
if you're trading currency pairs just based on rate cuts and the possiblity of it down the road, you'll be in trouble.