The latest development in the currency market has put the USD at/approaching multi-year lows against a set of currencies.
Against Euro, the USD scored another all-time-low at 1.2239,
against British pound, it approached 1.7366, October 1998's peak of GBP/USD, recorded 1.7361 as the latest high.
Against Swiss franc, it sank below 1.2734 (October 1998's low) at 1.2628.
USD/JPY has been more timid due to BoJ's intervention wariness. Still, it dipped to 107.08, approaching the November 2000's low at 106.76.
Aussie relentless rise has put it at .7413, a pip below Oct 1997's peak, the neighboring currency, New Zealand Dollar, rose towards .6507, matching the peak set at Oct 1997. Canadian dollar still swimming below 1.3000, waiting to drop to the November 1993's low at 1.2900.
And there's still no end in sight.
Should today's FOMC meeting yield no corrective pullback against these currencies, I guess nothing else can lift the USD.
While the steel tarriffs have been put to rest by Bush Administration, there's another row about oil.
Here's an excerpt from Bear Stearns NY daily commentary dated December 5th 2003:
"Fortunately, the steel tariff row has been put to bed by the White House's decision to rescind the tariffs. Unfortunately, there are plenty of other issues that could replace steel as both hotbeds of trade friction and sources of instability for the dollar. Tax breaks for some large US exporters are still to be replaced by a system that will forestall retaliatory tariffs from the EU. This could easily test the patience of the EU next spring. This dispute, like steel, has been ongoing for some time and hence is well known to the market. However, there is one issue that could create international tension, and dollar weakness, that is perhaps only in its infancy right now. It concerns oil. US Energy Secretary Spencer Abraham reacted angrily to suggestions from OPEC that the weakness of the dollar could spur output cuts early next year. OPEC is clearly angry that revenues from oil production have been cut down by the weaker dollar; Abraham is angry that OPEC never gave the world a break when the dollar was strong. But the US has to be careful here. As it found in the steel tariff row, helping domestic suppliers might have its merits, but such help is of little benefit if the domestic buyers of the product are forced to pay higher prices as a result. Hence, if the US continues to put pressure on OPEC it could end up on the wrong side of much higher oil prices. A key factor here is the level of the dollar itself. The weakness of the dollar clearly eats into OPEC's revenues. As the US energy department rightly points out, this is just part of the swings and roundabouts that accompanies trade. OPEC enjoys benefits when the dollar is strong, and costs when it is weak. And, provided the benefits and costs even each other out over the longer term, OPEC should not moan when times are hard. While this view makes perfect sense, we have to bear in mind two issues. The first is that the dollar has fallen very far and, if we are right, has much further to fall. So, if OPEC feels hard done by now, it will feel a lot worse in the future. A second issue is that the euro is clearly developing an international currency role to eventually rival the dollar in a way that the likes of the yen and Deutschmark never did. There has already been a lot of talk, admittedly from the EU, that Russia could price its oil in euros. Russian authorities have been a bit more circumspect, but the possibility of Russian/European oil trade being denominated in euros rather than dollars, must surely be something that the Russian government and Russian producers will have to think about long and hard. Of course, it is one thing to suggest that Russia will start to price in euros (at least to Europe) and another to suggest that OPEC could move in the same direction. However, we have to bear in mind that Iraq priced its oil in euros before the war earlier this year and Iran has talked openly about using euros rather than dollars. What's more, there has been a lot of talk in the market that Middle Eastern dollar sales and euro purchases have been behind much of the euro's strength this year. If this is the case it could well demonstrate that some oil producers want to reduce their reliance on the dollar, and part of the reason for this could be to eventually make greater use of the euro in oil pricing. Certainly in Russia, there has been a very significant move away from the dollar in both reserves and domestic deposits. This clearly makes sense given that Russia supplies around a half of Europe's oil needs. It is not so obvious that Middle Eastern countries should make a similar switch. Nevertheless, there are some signs that it is happening. And if the dollar continues to plunge beyond even our USD1.30 target for the euro, these trends will surely accelerate. And hence we could get into a very negative downward spiral for the dollar as more dollar weakness creates more pressure to de-emphasize the dollar in domestic finance and perhaps oil pricing as well, which, in turn, causes even more dollar weakness. In the end, the US economy would be the loser from both significant dollar weakness and a reduced role for the dollar on an international scale. With this in mind, it might be a good idea if the department of energy were to resist criticizing OPEC policy."
Regarding ECB, I don't think they would risk the Eurozone slow (slow compared to US) by hiking the rates too soon. Not to mention that the current EUR/USD already an equivalent to rate hike. As for cutting the rates... with growth already running (although its pace is still slow), cutting more base points on Eurozone rates would be unimaginable to me.
Still, the more significant event of this week, as I have mentioned before on this thread, will be today's FOMC meeting.
That's all for now.
Good luck, good trade.
