Bloomberg is reporting that the US dollar fell to a record low against the Euro, which may prompt the Fed to lower interest rates again.
“The dollar will continue to weaken because the rate differentials move against the dollar,” said Marcus Hettinger, a currency strategist at Credit Suisse Group in Zurich. The subprime issue is negative because it increases the probability that the Fed will ease again.”
The U.S. currency dropped to an all-time low of $1.4556 per euro before trading at $1.4547 as of 7:03 a.m. in New York, from $1.4469 late yesterday. The dollar may fall to $1.46 in the coming days, Hettinger said.
Despite the negative news, market cheerleaders in the United States are saying there’s not much to worry about:
The falling dollar isn’t cause for alarm, according to David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York.
“The dollar is no lower today than it was in 1997,” Rosenberg wrote in a Nov. 2 research note. “We don’t remember that being a particular Armageddon-type time period.”
Mr. Rosenberg, would you please share some of that Kool-Aid with the rest of the world? Let’s not forget that back in 1997:
- Oil wasn’t
$90$98 per barrel - There was no ‘credit crunch’ or ’subprime mess’
- US Financial Firms weren’t struggling and writing off major losses
The dollar will slide further as the prospect of lower Fed rates prompts investors to shift assets into higher-yielding currencies, according to BNP Paribas SA.
“People no longer see the U.S. dollar as a high-yielding currency,” said Sharada Selvanathan, currency strategist in Hong Kong at BNP Paribas, the largest French bank. “They’d rather switch into other currencies where the economic fundamentals are better and where they can also gain higher yield,” such as Australia’s dollar.