Ben S. Bernanke's interest-rate cuts have touched off a vicious
circle of doom for the dollar.
The Federal Reserve reduced the rate on direct loans to commercial
banks by a quarter-point to 3.25 percent before Asian financial
markets opened today. It will likely lower its target rate
for overnight loans between banks tomorrow to at least 2.25
percent from 3 percent, according to futures traded on the
Chicago Board of Trade. Lower borrowing costs work against
the dollar by making fixed-income securities issued by the
government less appealing to global investors.
``The relative return on U.S. assets is not attractive enough
and we have moved back into looking for dollar weakness,''
said Robert Robis, a bond fund manager in New York at OppenheimerFunds
Inc., which oversees $260 billion. Robis last month was betting
the dollar would rally versus the euro.
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If that weren't enough to make bears out of bulls, the weakest
dollar since at least 1971 based on a Fed trade-weighted index
is helping push oil, grains and metals, which are priced in
the U.S. currency, to record highs. That in turn is causing
economists to lower growth forecasts for the U.S. and preventing
central banks concerned that inflation is accelerating from
cutting interest rates, further undermining the dollar.
``The whole world feels there's inflation when a good part
of that is the weak dollar itself,'' said Stephen Jen, head
of global foreign-exchange research at Morgan Stanley in London.
``Watching the dollar plummet like this is very dangerous.''
Picking Up Steam
The dollar tumbled 6 percent in the past month against a
basket of six major trading partners, the fastest pace of
decline since May 2006. It fell to a record low against the
euro of $1.5903 today, before trading at $1.5837, and depreciated
to 95.76 against the yen, the weakest since 1995.
Barclays Capital Inc., BNP Paribas SA, Morgan Stanley, Standard
Chartered Plc, Bank of America Corp. and Credit Suisse Group
cut their forecasts for the dollar in the last two weeks.
European Central Bank president Jean-Claude Trichet and Japanese
Prime Minister Yasuo Fukuda said last week in interviews the
plunge is ``concerning'' and ``undesirable'' for growth. Goldman
Sachs Group Inc. and Morgan Stanley strategists say that coordinated
action by policy makers to stem the currency's slide is increasingly
likely. In intervention, central banks buy and sell currencies
to influence exchange rates.
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