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Dollar drops to record low after Fed rate cut

Simon Rabinovitch
Reuters
October 31, 2007

NEW YORK (Reuters) – The dollar fell to a record low against the euro on Wednesday after the Federal Reserve cut its benchmark interest rate by a quarter percentage point and said the pace of U.S. economic growth will slow this year.

Even though Fed policymakers said in a statement that inflation risks are now roughly equal to the possibility of slower growth, the weight of negative sentiment on the dollar was enough to lift the euro to an all-time high for the fourth consecutive session. It briefly pushed above the psychologically important $1.45 level.

“It will take more than the Fed effectively making statements to change the broader trend of dollar weakness,” said Flavia Cattan-Naslausky, currency strategist with RBS Greenwich Capital in Greenwich, Connecticut.

“It will need strong data rather than words to squeeze positions,” she wrote in a note.

The euro jumped to $1.4504, a record high, according to Reuters data, and up nearly 10 percent so far this year. It later settled back at $1.4466, up 0.2 percent on the day.

The euro’s gains were broad and deep, rising more than 1 percent against the yen to 167.29 yen.

The Fed’s somewhat benign inflation outlook contrasted with an official estimate that euro zone consumer inflation in October was well above the European Central Bank’s target, increasing the likelihood of higher interest rates there.

The dollar index (.DXY: Quote, Profile, Research), a measure of the U.S. currency’s value against a basket of major currencies, fell to a record low of 76.465. The index was down 1.6 percent in October, contracting for the fourth month in the last five.

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US Economy in “Relentless” Decline
Analysts say dollar will continue to slide no matter what

Steve Watson
Infowars.net
October 31, 2007

Economic experts have predicted a continuing slump for the dollar, no matter what the federal reserve does. Others have suggested the dollar’s decline is now relentless and will only be accelerated as other countries abandon it for stronger reserve currencies.

“The relentless slide in the dollar against other major currencies, notably the euro, is encouraging speculation that Asian countries and oil producers will step up diversification of their reserve assets out of the US currency, accelerating its decline,” Capital Economics’ Julian Jessop has written today.

While Jessop states that the The dollar’s fall has been and will be further driven by a slowing US economy and not by reserve asset diversification, others are not so convinced.

Despite the fact that the Fed has today cut interest rates by a quarter point, analysts at Market Watch believe the dollar is to continue on a downward spiral now, no matter what:

“Whether the Fed cuts its benchmark a quarter percentage point, as expected, or a half-point –or even not at all — the dollar is likely to bear the near-term brunt of the market’s kneejerk reaction either way, and then move in one direction: down.” Lisa Twaronite states.

Regardless of whether or not the Fed cuts rates, “the dollar is in for a beating,” said Marilyn McDonald, marketing director at Interbank FX.

“The U.S. dollar is finally in trouble. For quite some time now, it has been one of the top five yielding currencies among the [Group of 10 industrialized] nations, which is why it has been used in the carry trade for so long,” she said.

Carry trades involve borrowing lower-yielding currencies, such as the yen, and investing it in higher-yielding assets. The dollar has long benefited from such trades, but the benefits are dropping in line with U.S. interest rates.

While the vast majority of analysts agree that the markets are in deep trouble and the dollar is weak due to relatively poor economic fundamentals, U.S. Treasury Secretary Henry Paulson has said that financial markets are recovering from the subprime crisis.

Paulson again echoed previous sentiments of the IMF, Alan Greenspan and Ben Bernanke, stating that while it was “definitely the case” that innovation in U.S. capital markets had gotten ahead of regulatory controls, contributing to the crisis, such innovation remained desirable.

“I don’t think we would want it the other way around. If we had it the other way around, we’d be sacrificing growth and efficiency in the markets.”

They have all continually badmouthed the dollar, claiming it is “overvalued” despite the fact it has lost over half of its value against the Euro since 2001. The IMF, despite acknowledging “the likelihood of a disorderly plunge in the dollar” and contrary to pleas from Europe has given the green light for traders to continue to sell the dollar.

In their World Economic Outlook brief, the IMF brazenly states that the agenda in continually badmouthing the dollar is to exalt the Chinese Renminbi in order to contribute to “a necessary rebalancing of demand and to an orderly unwinding of global imbalances.”

In layman’s terms, this means lowering the living standards of the American middle class by tanking the dollar and sending oil prices skyrocketing towards $200, as part of the “post-industrial revolution” agreed upon by the Bilderberg Group. This would eviscerate the middle class and create a two-caste system based upon the Chinese model, where the super-rich live in opulence and the rest of the population are forced to struggle on the poverty line.

Meanwhile analysts at EconomicsBriefing.com have pointed out that while the UN is warning of ballooning food prices and the possibility of food riots, no one is saying or doing anything about the primary cause, US federal reserve encouraged, worldwide central bank monetary expansion.

Related News:

Don’t bet on China rescue if U.S. economy tanks
http://www.reuters.com/article/reutersEdge/idUSPEK14487420071031

Odds of another rate cut decline after Fed says risks are now balanced
http://www.forbes.com/markets/fee….07/10/31/afx4285537.html

Dollar likely to drop no matter what Fed does
http://www.marketwatch.com/news/s….cMostMailed

Dollar Hits New Lows on Economic Data
http://biz.yahoo.com/ap/071030/dollar.html?.v=8

Home Prices Post Biggest Drop in 16 Years
http://biz.yahoo.com/ap/071030/home_price_index.html

Billionaire Buffett still complaining his taxes are too low
http://rawstory.com/news/2007/NBC_…_taxes_1030.html

Defaults on Insured Home Mortgages Rise 22 Percent
http://www.bloomberg.com/apps….efer=realestate

Having broken above $2.07, sterling eyes $2.09 and up
http://investing.reuters.co.uk/new….EX-TECHNICALS.XML

Next Up: The Aussie Dollar?
http://thismodernworld.com/4039

Australia’s Treasurer Warns of Global Economic Tsunami
http://www.thetrumpet.com/index.php?q=4361.2623.0.0

The $915B bomb in consumers’ wallets
http://money.cnn.com/2007/10/..htm?postversion=2007103007

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