Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Sunday, November 26, 2006

The Dollar Moves Downward

FT.com / MARKETS / Currencies - Markets rocked by sharp slide in dollar: By Neil Dennis and Chris Giles in London and Ralph Atkins in Frankfurt Published: November 24 2006 20:08 | Last updated: November 24 2006 20:08: A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.

As US markets were closing on Friday , the euro stood at a 19-month high of $1.309, up 1.2 per cent, while sterling gained 0.9 per cent to a 1½-year peak of $1.9333. The yen climbed 0.5 per cent to ¥115.66....

The euro’s strength could put the European Central Bank under fresh political pressure not to raise interest rates again after the expected quarter percentage point rise to 3.5 per cent on December 7.

The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year....

The gaping US trade deficit, the near certainty of a December rise in eurozone interest rates, rising expectations of a cut in US rates in the spring and wariness about borrowing in yen to finance investments in the US all continued to weigh on the dollar, analysts said.

These concerns were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves...

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