Readings: Dollar Bears, Recession & Dollar Crisis, Pricey Gold
The dollar has benefited from Fed rate cuts before. During the first six months of 2001, the currency gained 10 percent against the euro as the central bank slashed its target 2.75 percentage points to below the ECB’s benchmark refinance rate following the bursting of the technology bubble.
Paris-based BNP, the most accurate of 31 firms surveyed about their currency predictions for the second half of 2007, is among the most bullish on the dollar in 2008 with its forecast of $1.36 per euro by yearend.
“A lot of the people are finding this is a good time to get back in the dollar,” said Scott Ainsbury, a money manager who helps oversee $12 billion in currencies at FX Concepts Inc., a New York-based hedge fund.
- Hussman Funds: A Writeoff Recession and a Dollar Crisis
. . . the carry between Chinese interest rates and U.S. Treasury yields has now turned negative, meaning that there is no longer a favorable interest rate differential to encourage Chinese investment in U.S. government debt. Moreover, the gradual appreciation of the yuan continues, meaning that the Chinese are also taking losses on their holdings of U.S. Treasuries due to dollar devaluation.
. . . the markets will respond to this difficulty with what MIT economist Rudiger Dornbusch referred to in 1976 as ‘exchange rate overshooting‘. In the present context, that means a dollar crisis . . . if there is a weak prospect that foreign lenders will achieve a total return on U.S. Treasuries competitive with what they can earn in their own country, and every prospect that short-term interest rates in the U.S. will remain depressed or fall even further, the only way to attract capital is to immediately drive the value of the U.S. dollar to such a sharply depressed level that it will be expected to appreciate over time.
- Business Standard: Gold touches Rs 11,890/10 grams
Gold rallied in Mumbai on Friday after keeping low for two days to match global prices that hit record highs this week on South Africa supply concerns, US financial turmoil and a depreciating dollar. Standard gold in Mumbai rose by Rs 105 to hit a fresh high of Rs 11,890 per 10 grams while pure gold surged by Rs 100 to touch Rs 11,940 per 10 grams.
The massive increase in scrap selling, according to Ajay Mitra, MD, Indian sub-continent, World Gold Council (WGC), is because a group of customers, who have built their stocks through intermittent buying in the past, is booking profits and investing in real estate and bonds.
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