By Tom Lauricella
The dollar's downward trend is accelerating at a time when interest rates, inflation concerns and the huge federal deficits undermine the currency.
No relief in sight for the dollar in any of these fronts, is expected to continue the downward pressure on the dollar.
The dollar fell nearly 1% against a broad basket of currencies last week after a similar fall the week before that. The ICE's Dollar Index U.S. closed at its lowest level since August 2008, before the financial crisis intensified.
"It just has not been anything positive for the dollar," said Alessio of Longis, who oversees the Currency Opportunities Fund Oppenheimer.
The main driver of the dollar's decline is the low U.S. interest rates compared with higher rates and rising overseas. The lower rates mean a lower return on cash, and the pressure of that factor could intensify this week when it is expected that the commission of the U.S. Federal Reserve setting short-term rates of signal that will remain near zero for many months. Next Wednesday, the Fed chairman, Ben Bernanke, is scheduled to give the first news conference of the central bank to date after a strategy meeting.
But concerns over the U.S. budget deficit which is intensifying the sell-off. On April 18, investors were frightened by a warning from Standard & Poor's that it could take the coveted AAA rating to the U.S. government, amid concerns that the government of President U.S., Barack Obama, and Republicans in Congress might not be able to agree on significant reductions in the deficit.
addition, Chinese government officials have stepped up the rhetoric indicates that they could diversify their currency reserves of U.S. $ 3 trillion (million million) to reduce their holdings of U.S. dollars. Such a turn would undermine what has been a substantial source of dollar buying in recent years.
In recent weeks, China has allowed its currency, the yuan, to appreciate steadily. This presents two challenges for the dollar. First, the more Beijing allows its currency appreciate, the less need buy dollars to counter the strength of the yuan. Second, other Asian countries competing with China for export could also allow their currencies to strengthen against the dollar.
Washington has been pressing Beijing to let the yuan rise against the dollar and other currencies to help reduce the U.S. trade deficit, in other objectives. But a continued fall in the value of the dollar is a double-edged sword for U.S. economy
A weaker dollar is a boon for U.S. exporters giving them more competitive prices for their goods. This has led technology companies and manufacturing, and a positive example in an economic recovery has been slow.
Since the recovery began in the third quarter of 2009, exports contributed about 1.4 percentage points to the annualized growth rate of 3.0% in the U.S., representing the largest share of growth trade to date in a period of 18 months.
But a weaker dollar hits consumers affected by the rising cost of imported oil, as exporters seek higher prices for crude oil in dollars as a way to offset the dwindling value of its currency.
some extent, some civil servants U.S. see the decline of the dollar as the inevitable result of differing growth rates between the U.S. and the developing world's rapid growth. Bernanke and Treasury Secretary Timothy Geithner, have not shown signs of wanting to alter their stance.
A cause of peace for the U.S. government is that the dollar's decline has been orderly. Against a broad basket of currencies, the dollar has fallen 9.1% from a year earlier. In 2003 and 2004-a period of very low interest rates engineered by Bernanke's predecessor, Alan Greenspan-registered annual declines of about 10%.
While the weaker currency is helping to promote recovery, has also contributed to public anxiety about inflation palpable and reduced U.S. posture on the global stage. The weak currency helps boost the price of oil in dollar terms, and therefore gasoline at the pump, fueling another political problem for Obama at this time. According to a Gallup poll in April, 42% of Americans surveyed had little or no faith that the Fed would do better for the economy, and 43% had little or no faith in Geithner.
Last week, the dollar, as measured by the index that follows against a basket of currencies, hit its lowest point from the 2008 financial crisis. Before the crisis began, the dollar had lost more than 40% of its value against the basket during a steady decline in six years, driven by many of the same factors that affect the currency today. The dollar is 5% of its historical low, which fell in March 2008 as the dollar index, which dates back to 1971.
-Jon Hilsenrath and Jonathan Cheng contributed to this report.
Source: WSJ
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