Dollar Tanks Post-Cut

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Includes: DBV, UDN, UUP
by: Judith Levy

The U.S. dollar hit its lowest point in 15 years against a basket of six currencies Thursday, reflecting concerns that the recent half-point cut in the fed-funds rate could fuel inflation. The greenback was also under pressure from speculation that Saudi Arabia might cut its currency peg to the U.S. dollar, as Kuwait did earlier this year. "There is no end in sight for dollar selling," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon. On Thursday, the Canadian dollar reached parity with the U.S. dollar for the first time since 1976, and the euro hit an all-time high against the American currency. Government bond yields shot up and the oil price set a record at $84.10. Gold hit $738.30 an ounce, its highest level since 1980. The dollar's slide has been "rapid and disorderly," according to Tony Crescenzi, chief bond market strategist at Miller Tabak. The 30-year bond price dropped two points for the second day in a row, with the yield rising to 4.98%. The forward five-year Tips (Treasury inflation-protected securities) break-even rate rose to 2.63%, a high for the year. "The market is becoming more concerned about the Fed's inflation-fighting credibility," said Michael Pond, inflation-linked strategist at Barclays Capital. Fed Chair Ben Bernanke told Congress this week the rate cut was meant to "try to forestall potential effects of tighter credit conditions on the broader economy."

Sources: Financial Times, TheStreet.com, Bloomberg, Wall Street Journal
Commentary: Fears of Dollar Collapse?Fed is Punishing Dollar HoldersCurrency Analysts Expect Dollar To Strengthen
Stocks/ETFs to watch: DBV, UDN, UUP, FXC, FXE, FXY

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