US Dollar Lowest Against Yen in 13 years

Although the U.S. dollar has been the beneficiary of the forced liquidation of commodity positions which are for the most part denominated in U.S. dollars, it hasn't been because underlying fundamentals have changed, as its drop against the yen has proven. Today the dollar fell to a 13-year low against the yen, dropping to 90.89.

It has rebounded some since then, but it does show that the yen is behaving like the fundamentals connected to it, while the dollar isn't because of the forced liquidation mentioned above.

Still, the remarkable factors in the market keep the dollar high against other nations' currencies, as it was up to two-year highs against the euro, while it enjoyed a six-year high against sterling.

Sterling fell to as low as $1.5270 against the U.S. dollar, while the euro was as low as $1.2498. The Australian and New Zealand dollars also plunged against the greenback, with the Australian dollar taking the biggest hit, falling by 7.6 percent to $0.6213, while the New Zealand dollar was right behind it, decreasing by 6.5 percent to $0.5576.

How Long Will the U.S. Dollar Continue to Rise?

... At least as long as it takes for investors to unwind their positions.

The major reason behind the strengthening of the U.S. dollar is the money investors borrowed over the last several years that is now being called in by lenders.

With the vast majority of that debt being dollar-denominated, it has forced investors to do whatever they can to find greenbacks to pay off those loans. That, of course, has pushed up the value of the dollar.

The majority of this is happening because of the positions held by institutional investors.

Even though this is all true, the tremendous upward movement of the dollar is due for a correction, and I would think it will have to happen sometime soon.

In reality, the dollar really isn't stronger than other currencies, as explained, but it is the currency used in most transactions that have to be unwound. Once that period of time is over, we'll see tremendous downward pressure on the dollar as inflationary pressures once again dominate the currency.

Still, the dollar is expected to continue rising, even though it will experience temporary breathers and drop over a few sessions during this time of unwinding.

What is "Forced Liquidation" or Deleveraging?

We're hearing a lot about forced liquidations and deleveraging lately, and their effect upon the U.S. dollar and gold, among most commodities.

What it basically means is someone borrowed money to make a trade. When the money is no longer available to borrow to keep the trades going, investors are forced to sell their investments in order to pay back those loans.

This is why even though the underlying fundamentals that would normally result in a weaker U.S. dollar and surging gold price are still there, they haven't performed in their normal manner.

A number of commodities are being hammered for this very reason; especially gold.

The reason this happens is institutional investors that need cash are "forced" to sell positions in commodities they would rather keep, driving the price down. That's the reason it's called forced liquidation or deleveraging.

Because we are in an unusual situation, it's difficult to know or project the timing of when this will all revert back to normal.

We can be sure of one thing: it will eventually even out and the U.S. dollar will fall, while the price of gold will surge. It's a matter of when, not if.

U.S. Dollar in Strongest Showing Against Euro in 20 Months

The U.S. dollar continues to strengthen, as it had its best showing against the euro in 20 months. Much of this is generated from the possibility of a second financial rescue package by the U.S. government, along with talk of a second stimulus package as well.

Commodity prices of responded by continuing to plunge in the short term as the dollar-denominated raw materials continue to struggle, even though underlying fundamentals haven't changed.

Fear will keep this trend going for a time, but as Jim Rogers says, we're now in a "forced liquidation" stage for commodities, but once liquidity comes back to the market, we'll see commodity prices go up again, as demand has only slowed down, but the commodity bull market will now be longer than originally expected because of the financial crisis.

In the short run we'll see the commodity market slow in growth as countries cut back on or put off projects. In the long term we'll see things return to where they've been concerning commodities. We will also see the dollar weaken significantly again in response to the ill-advised bailout that will eventually pummel the dollar and increase inflation from pouring more greenbacks into the economy.

U.S. Dollar Continues as Safe-Haven Choice

With many gold funds needing cash, along with ongoing deleveraging, the U.S. dollar continues to be the refuge of choice for many jittery investors.

With the dollar and the yen basically mirroring the movement of the equities market, they have been the cheif beneficiaries of current market conditions.

The yen is still playing its customary role of measuring risk, and the dollar is moving pretty closely in step, playing a similar role as well.

For the yen, when stocks strengthen - investors sell, when stocks plummet, they're quickly buying the Japanese currency.

The yen continues to be pressured because risk-adverse investors are abandoning carry trades at this time; that has helped the U.S. dollar hold its strength. It'll continue to be difficult to guage risk while the market seesaws back and forth.

Those currencies which will be most negatively impacted by the continuing strength of the dollar will be the British pound and euro.

U.S. Stock Surge Strengthens Dollar

Currency investors have temporarily taken their eyes off the fundamentals and are helping strengthen the U.S. dollar in response to government response to the credit crisis, as well as the upward moves of the stock market.

While it made no logical sense for the stock market to surge after the troubling news Thursday that mid-Atlantic factory output dropped to its lowest level in 18 years, still it did, and not only that, but the production in the industrial sector in the U.S. also fell to its lowest monthly drop since 1974.

For the most part the reason this is happening is the focus on governments around the world pouring capital into shoring up the credit crisis. This gives the illusion of safety, and for now people are buying into that illusion.

Once the focus comes back to fundamentals, we'll see the dollar soften again, as most of the banks see in the near term.

People have forgotten the real risks involved with the U.S. dollar, and are seeing it as a safe haven. That shouldn't last too long as reality sets back in. Another factor is they still assume the U.S. is the safest bet in times like these.

U.S. Treasuries and other liguid dollar instruments have been the main benefactors over the last few months.

Even the yen has fallen against the dollar in these times, dropping to its lowest level in 7 months.




Still, confidence in general is still low, and regardless of the government bailouts, credit is still hard to come by.

World Bankers Aiding in Flooding Markets with U.S. Dollars

In a big attempt to release liquidity into the market, the Federal Reserve is getting the help of the Swiss central bank, Bank of England and the ECB, as they are getting together to auction off unlimited dollar funds.

This is unique in history as past dollar swaps were always capped at a certain level. In this case funds auctioned will be unlimited.

Maturity dates for the funds will be offered for 7 days, 28 days, and 84 days for a fixed rate respectively.

These swaps have been one of the reasons the U.S. dollar has continued to strengthen in the last months.

The greenback fell today against the euro and pound, as well as a number of major Latin American currencies.

Today the Dow Jones Industrial Average rose by its highest one-day point total in history, gaining 936 points, to finish the session at 9387.61

How Long Can U.S. Dollar Resurgence Last?

Some people have been caught off guard by the continuing strength of the U.S. dollar, as most that understand the source of its weakness have predicted its continual plunge, especially after the trillions in obligations the U.S. government has committed itself to recently.

A couple of major factors have been responsible for its current strength, although it's only a matter of time before the piper will have to be paid.

One major reason for retaining its strength has been the countries that had lagged behind the U.S. in economic disaster have now come around full circle and are beginning to participate in the global economic tsunami. That has made some other currencies struggle as well.

This week the International Monetary Fund (IMF) said the economies of the UK and Europe will sputter during 2009, along with the U.S.

The other key to a stronger dollar has been investors deleveraging the investments in dollar-denominated commodities, as well as dollars being sold to acquire stocks. Related to this is institutional investors ridding their funds of positions in emerging markets. This has been going on since about the middle of September.

Investors are now in the position of having to buy U.S. dollars so they can unwind those trades.

All of this is simply suspending the day of reckoning for the dollar. The question isn't whether it will happen, the question is when and how deep the shattering of the greenback will go.

Nothing has really changed in the positive for the dollar since its 6-year decline began against its major trading partners. Only lagging behind the economic disaster in America, and now fully partaking in it, has saved the dollar as its trading partners struggle.

Once this changes and demand for goods and services begin to rise again, all bets are off as to how the dollar will respond. The bursting of the commodities bubble is only temporary, as nations will once again start building and need a variety of goods to grow their economies. At that time we'll begin to learn how deep the disease of the troubled U.S. dollar will really be.

U.S. Federal Reserve Cuts Prime Rate by Half a Point

The U.S. Federal Reserve cut its lending rates by half a point today, joining other central banks around the world in an effort to boost failing markets.

Lending rates now stand at 1.5 percent from the Fed, with the discount rate also being trimmed by half a point to 1.75 percent.

Other banks cutting rates were the European Central Bank, which dropped it rates from 3.75 percent from 4.25 percent. The Bank of England trimmed their rates from 5 percent to 4.5 percent. Other central banks cutting rates were the Swiss National Bank, The Bank of Canada and the Swedish Riksbank.

This is more symbolic and psychological than really doing anything that will make a practical difference at this time.

U.S. Federal Reserve Cuts Prime Rate by Half a Point

The U.S. Federal Reserve cut its lending rates by half a point today, joining other central banks around the world in an effort to boost failing markets.

Lending rates now stand at 1.5 percent from the Fed, with the discount rate also being trimmed by half a point to 1.75 percent.

Other banks cutting rates were the European Central Bank, which dropped it rates from 3.75 percent from 4.25 percent. The Bank of England trimmed their rates from 5 percent to 4.5 percent. Other central banks cutting rates were the Swiss National Bank, The Bank of Canada and the Swedish Riksbank.

This is more symbolic and psychological than really doing anything that will make a practical difference at this time.

Dollar Strengthens Against Euro as European Economic Fears Mount

Mounting fear that the European market is about to partake in similar results as the U.S. market, has the euro continuing to fall against the U.S. dollar. Today it dropped to a 13-month low of $1.35 against the greenback.

The problems in the European market have been slower to emerge than in the U.S., and now it seems it's about to participate in the same problems.

This has continued to pummel commodities as investors are now eyeing dollar-denominated short-term paper like U.S. Treasury bills.

With the dollar continuing to strengthen, it has left gold in a much less important position than it would usually hold when people are looking for a safe haven for their capital.

Until the U.S. dollar drops again, this will continue to be the way the market moves overall.

While it's difficult to ascertain, it looks like a significant number of overseas U.S. dollars are being brought back into the U.S. at this time.