Countries Fighting Collapsing Dollar Value

A number of countries around the world are acquiring larger positions in the U.S. dollar in hopes it'll help shore up the plummenting value of the greenback to the detriment of their exports.

The most recent countries snatching up the dollar are Russia, South Korea, the Philippines and Thailand. The 15-month low of the U.S. dollar continues to raise concerns on slowing down any economic recovery because of exports from the countries having strong domestic U.S. competition because of the dollar's weakness.

Countries like Taiwan an Brazil are also concerned about the strength of their currencies against the dollar, and in the case of Taiwan they've now forbidden foreign investors from placing time deposits in the country in hopes of weakening their own currency. Comments from official in Brazil also imply there could be more action on taking steps to weaken the real.

In spite of rhetoric from Washington that they support a strong U.S. dollar, no steps have been taken to make that happen, and so it seems that's a direct nod to U.S. manufactures and unions who had backed Obama's presidential run. Exports from the U.S. increase when the U.S. dollar declines in value.

For now, China doesn't care whether the dollar rises or falls against the yuan because it's pegged to rise or fall against the dollar, keeping it at an even keel. Other countries have been pressuring China to allow the yuan to rise in value as Chinese exports also benefit from a weaker dollar as far as when competing against non-American exports.

With that in mind, there's no incentive for China to change its monetary policy, even though regional competitors complain about it. We might see some carrots thrown out to manage some of the complaints, but other than that, I don't see China making any drastic changes to their current monetary policy any time soon.

China holds all the cards in this economic battle, as if too much pressure is put on them, they could keep the import of goods from those particular nations at a small level, a major concern with the huge population in China and a solid, emerging middle class which will resume spending once the global economy rebounds.

Consequently, individual nations will have to take their own steps to make their currencies competitive, and not mistakenly wait around for some type of move by China.

For the U.S. dollar, it almost assuredly will continue to fall in value, making it even harder for other nations to compete on the international stage and with China for U.S. imports. Other nations as well are concerned, as the Euro continues to strengthen against the dollar, also making it harder for European nations to increase exports to the U.S.

Dollar Gains Against Major Latin Currencies

The U.S. dollar enjoyed gains against major Latin American currencies today, against the backdrop the Federal Reserve was going to keep interest rates where they're at, with no plan on raising them any time soon.

Today's gains were against the Chilean peso, Peruvian Sol, Brazilian real, Mexican Peso and Colombian peso.

With the Chilean peso, the dollar increased as high as a two-month high of 515.13, although falling back close to the end of the session.

Against the Peruvian sol, the greenback rose to a two-week high of 2.8350, in contrast to the 2.7725 close on Monday.

The dollar advanced for an 8-day high against the Brazilian real, quickly jumping to 1.5775 at about 9:00 am EST.

With the Mexican peso it also got off to a quick start in the morning, as it grew from its poor performance yesterday of 8.8568; a multi-year low. It increased to 9.9377 early in the morning, and held fairly strongly at the end of the session.

U.S. Dollar Mixed Against Latin American Currencies

The U.S. dollar was mixed against its Latin American counterparts, as it fell to a multi-year low against the Mexican peso, while also falling against the Colombian and Chilean pesos on Friday.

Against the Brazilian real the U.S. dollar increased from multi-year lows, while it also gained against the Peruvian Sol.

Citing inflation concerns over food and commodity prices, the Mexican central bank held interest rates where they were, as inflation was higher than expected in the early months of 2008. The dollar ended the session at 10.4706, after falling to a low of 10.4348.

After falling to muli-year lows earlier in the session, the dollar gained some back against the Brazilian real, reaching a high of 1.6730.

At about mid day, the dollar fell to a low of 454.75 against the Chilean peso, in contrast to the high of 459.65 it reached on Thursday.

Against the Peruvian Sol the dollar went as high as 2.7235, after reaching 2.7175 the day before.

The Columbian peso gained against the U.S. dollar, as it went to 1786.00 on Friday, after weakening at 1794.50 earlier in the day.

Dollar Falls on Economic Data

Comments from Federal Reserve Chairman Ben S. Bernanke that the U.S. economy could possibly contract in the first half, caused the U.S. dollar to slide against the euro for the first time in three days.

"Bernanke confirmed what the market is feeling about the economy," said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon. "It put some pressure on the dollar."

Against the euro, the U.S. dollar dropped by 0.5 percent to $1.5695 in New York, down from $1.5614 yesterday. Other major currencies it fell against were the English pound, Brazilian real, Icelandic krona, Australian dollar, South African rand and the Norwegian krone.

Most traders say there is about an 88 percent chance the Fed will cut the lending rate by a quarter-percentage point on its April 30 meeting. They also say the chances of a half-percentage point cut stand at 12 percent.