US Federal Reserve Lets Dollar Slide to Prevent Housing-Led Recession

Based on the all-time low in the Fed’ trade-weighted dollar index, it certainly looks like the elastic is about to snap in the US dollar. Gold, oil, and other denominated commodities have inched up in recent days. And it’s hard to see how the US dollar could rally from here. The market expects the Fed to cut rates in the next ten days. That is hardly bullish for the greenback.

Yes, it certainly looks like the Fed is prepared to let the dollar slide in order to prevent a major housing-led recession in the States. A weaker dollar will create problems in Europe, where a strong Euro hurts exports to America. But the Fed is responding to political pressures in the States, not to policy makers the ECB. Bernanke is Nero. Rome is burning.

Is the credit crunch over yet? The next seven to ten days will tell a lot, according to John Glover at Bloomberg. “Corporations need to refinance almost US$140 billion of commercial paper in Europe by the end of next week and will increase borrowing costs for companies, according to Deutsche Bank AG, Germany’s biggest bank.”

Commercial paper is a kind of short-term financing corporations use to raise cash, selling short-term debt instruments. But as you may know, there aren’t a lot of buyers for debt-backed assets these days. Have banks and investors recovered their confidence in the credit markets enough to step up and be buyers again? We’ll see.

 “Giant Chinese industrial conglomerate Sinosteel Corporation is looking to buy or mine uranium and a host of base metals in South Australia, according to its president, Huang Tianwen, in Adelaide yesterday to open the corporation’s first joint venture in the mining boom state,” reports Jeremy Roberts in today’s Australian. Sinosteel has a joint venture with PepinNini Minerals to develop the Croker Wells uranium deposit in South Australia. PepinNini is one of the three uranium companies with prospects in South Australia that we profiled in the most recent issue of Outstanding Investments.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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