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How Bad Is the Dollar's Fall?

Maniac: "Plus, when the dollar goes up in value, they have an awesome accumulation of treasurys they bought on the cheap."

And this is why I don't see a major, long term strengthening of the Dollar, as it would effectively increase the cost of redemption of debt. Most likely is an ad hoc fixing of the Dollar around $1000/gold, so funny-money debt can be repaid with funny-money.

How Bad Is the Dollar's Fall?

"The US Dollar has been in decline against the currencies of its key trading partners since January 2002."

Low interest rates and increasing deficits will do that to a currency.

"It takes considerably more Dollars to buy the basket of key currencies than it did in January 2002, but only slightly fewer than it took in January 1995."

Perhaps because those key currencies have also been devaluing by printing money like paper is free? I believe the comparison currencies have also fell to gold, oil, and other commodities and metals, just not as fast as ours has.

As for the relationship between Fed rates and Dollar strength, Euro was at $1.26 when we had 5.25% to burst the housing bubble, then went to $1.59 in anticipation of a full 100 bp cut last Tuesday after the BSC bailout and the new offer of cheap money to nearly everyone with questionable paper as collateral. The Dollar then strengthened because FOMC "only" delivered 75 bp, with two dissensions, and mentioned the word "inflation" in the press release, which I saw as jawboning rather than course correction.

Dollar will remain weak as long as FOMC and the US government continue to do more of what has already weakened it, rate cuts and deficit stimulus, the recent Deficit Stimulus Act being but the first installment of congress bidding for votes with our grandchildrens' money.

Table Set for U.S. Dollar Intervention by World Banks

I would suggest that banks have been intervening for some time now through rate cuts and devaluing their currencies by printing money like paper is free, which is why most majors have also fallen to gold and commodities.

If you suggest central banks do something more public, like peg currencies or buy massive more amounts of devaluing Dollars, I disagree. They already have enough of these deteriorating assets and the FOMC and US government give no reason to believe that fiscal responsibility will be restored any time soon.

The Dollar Should Continue To Fall

Carry trades and such are well over my head, but the Fed printing money like paper is free while the government raises deficits like the world will end tomorrow tells me that the Dollar will continue to weaken, in spite of the Euro itself weakening due to hyperactive printing presses. Major currencies are continuing to play "catch the falling Dollar," whether through rate cuts or liquidity injections, but can't do it when we are in an election year with candidates tripping over each other trying to be the most generous with the wealth of people thirty years in the future.