Kiss the dollar rally goodbye
I normally don't read Paul La Monica's CNNMoney articles, I don't know why but for some reason I just find him annoying...perhaps its the scraggly beard...anyhow he published an article that I completely agree with today: Kiss the dollar rally goodbye.
I have to admit that I have been absolutely flabbergasted (man what a great word) by the rapid flight to "quality" trade that has powered the U.S. dollar to new heights against the Euro over the past several months. I recognized that the United States was in for a world of pain economically and that the government has been printing dollars at an unprecedented pace, but I definitely underestimated the economic pain that the EU would go through.
With the Fed expected to cut interest rates by another 50 basis points this afternoon and the EU signaling that future rate cuts may end up being fewer and farther between, we may have seen a peak in the dollar versus the Euro. The U.S. dollar is already sitting at an unbelievably low level versus the Japanese Yen (the Yen is up 23% versus the dollar ytd) and it has slipped 10% versus the Euro since late October.
The Euro is currently sitting at around 1.38 U.S. dollars, which is 14% below its July high of $1.6038. It was looking pretty bleak there for a while, but perhaps the fearless forecast for 2009 that I penned back in August will actually come true:
"2) The U.S. dollar will resume its multi-year decline after the current bear market rally."
A massive budget deficit, historically low interest rates, and a weak economy are not the things that strong currency are built upon. It will be interesting to see how much the dollar weakens over the next several months and if it does how much of an impact it has upon the prices of commodities that are priced in dollars.