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Dollar Declines, Fed May Cut Rates 75 Points

Bloomberg
March 10, 2008

The dollar weakened against the euro and approached an eight-year low versus the yen as traders bet the Federal Reserve will lower interest rates by at least 75 basis points to avert a recession.

The currency traded within a cent of a record low against the euro as futures indicated 96 percent odds the Fed will cut its benchmark rate to 2.25 percent on March 18, 175 basis points more than the Bank of Japan’s and 175 basis points less than the European Central Bank’s. The U.S. currency weakened against a basket of major trading partners to near the lowest since the index began in 1973.

“What’s been driving the market is U.S. economic developments and expected interest-rate differentials,” said Thanos Papasavvas, head of currency management at Investec Asset Management in London. “This is a weak-dollar story. We would expect the Japanese yen and euro to continue appreciating.”

The dollar fell to 102.33 yen by 7:24 a.m. in New York, from 102.67 yen on March 7, when it slid to 101.43, the lowest since January 2000. It dropped to $1.5364 per euro, from $1.5355 at the end of last week, when it declined to $1.5459 a euro, the weakest level since the European single currency’s debut in 1999.

The yen advanced 0.4 percent to 157.20 per euro as the Cabinet Office said Japan’s equipment orders jumped 19.6 percent in January, the fastest pace in more than seven years.

The U.S. currency declined to $2.0197 against the pound, from $2.0134 on March 7, after a government report showed factory-gate in February inflation matched the fastest annual pace since 1991. The dollar also dropped 0.2 percent to 1.0233 against the Swiss franc and 0.5 percent to 5.1361 Norwegian krone.

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Faber: Bernanke Will Destroy Dollar

Market Watch
March 9, 2008

Federal Reserve Chairman Ben S. Bernanke will “destroy the U.S. dollar” by cutting interest rates, investor Marc Faber said.

Bernanke’s reduction in the target rate for overnight loans between banks to 3 percent has spurred a rout in U.S. stocks and gains in oil and gold prices, said Faber, the Gloom, Boom & Doom report publisher who told investors to buy gold at the start of its six-year rally.

The U.S. is now in a “de-leveraging” phase where banks make fewer loans, stunting economic growth, Faber said. He estimated that a U.S. recession began two or three months ago.

“In the U.S., they pursue essentially economic policies that target consumption, which in my opinion is misguided,” Faber said in an interview with Bloomberg Television from Chicago. “They should pursue economic policies that stimulate capital investment and capital formation.”

The Standard & Poor’s 500 Index is down 9.7 percent since Sept. 18, when the Fed began cutting the fed funds target to 3 percent from 5.25 percent. The dollar has lost 9.2 percent of its value versus the euro, crude oil futures gained more than 29 percent and gold added 34 percent during that time.

Further interest-rate cuts may spur inflation and reduce the value of 10- and 30-year Treasuries, Faber said, calling the bonds “a disaster waiting to happen.” Ten-year notes fell to a four-year low of 3.44 on Jan. 22.

Press Secretary Perino: I’ll Be Fired If I Talk About the Dollar

http://www.youtube.com/watch?v=C-Cvg9deslg

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