BUSINESS: Dollar Sinks, Returning to it's Freefall Against the Euro

The US Dollar dropped to three year lows against the Yen, with the Euro beginning to make positive gains again, after a two week reversal. The USD had made a change in direction from it's seemingly unstoppable freefall against world currencies, after positive appearing news from the FED. Apparently the catalyst for the slide was a disappointing U.S. consumer confidence report. Most observers expect the Federal Open Market Committee will leave rates on hold at a 46-year low of 1 percent, with no hint any increases are likely in the near term.
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The dollar was already under selling pressure against the yen after Japanese finance minister Sadakazu Tanigaki indicated that Japan might relax its defense of the dollar. The euro, meanwhile, was rising fast on the back of "an inordinate amount" of buying against the yen, said Josh Levy, president of CMC Group, a currency trading platform in New York.

Dealers interpreted this as a sign Japan accepts its yen-selling intervention can only smooth out exchange rate volatility to slow the dollar's decline, not reverse it.

Although the NYSE and Nasdaq markets have made amazing gains in the last two years, on the road to recovery from the recession prior, the US Dollar has been taking an almost continuous beating against the other world currencies. Japan, historically one of the largest purchaser's of US Treasury Notes, has been one of the main supports of financing the American government's budget deficit's, and ultimatly the US currency exchange rate. It is apparent that a strong dollar is becoming more and more difficult to justify and support.

The Euro, even with it's internal difficuties within the European Union, has been making steady gains regardless of what news may be published otherwise. This recent indication from Japan, only made this trending of the Euro to continue it's on-slaught on the dollar. Gold, commonly thought as a hedge against inflation, is at a pricing level it hasnt seen in years, and barely changed in the last two weeks of the US dollar's temporary reversal.

Although the weakening of the dollar has some benefit to the US economy, the public Strong Dollar expressions of the FED do not coincide with the direction of the indicators.

In late New York trading, the euro was quoted at $1.2633, up from $1.2467 late Monday. The dollar was quoted at 105.62 yen, down from 106.31 yen late Monday. The dollar was quoted at 1.2406 Swiss francs, down from 1.2570, and 1.3047 Canadian dollars, down from 1.3146. The British pound rose to $1.8258 from $1.8119. Gold Spot prices are floating near $410/oz, after a significant run-up the last few month's.

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[Edited on 27-1-2004 by smirkley]

[Edited on 27-1-2004 by SkepticOverlord]