Euro strikes 16-month high against dollar
The euro struck a 16-month high against the dollar and the Swiss franc notched a record high versus the US unit Tuesday amid heightened investor nerves over this week’s busy economic calendar.
The European single currency hit $1.4653 in morning trade, the highest point since mid-December 2009, as many dealers returned from a long holiday weekend. It later stood at $1.4619, compared with $1.4572 late in New York on Monday.
The dollar meanwhile tumbled to an all-time low point of 0.8745 Swiss francs.
Investors moved to adjust positions ahead of the US Federal Reserve’s two-day policy meeting, which was to open later on Tuesday, dealers said.
Okay, ready?
Geithner vows to defend strong US dollar policy
US Treasury Secretary Timothy Geithner vowed Tuesday that the United States would never follow a strategy to weaken the US dollar.“Our policy has been and will always be, as long as I will be in office, that a strong dollar is in the interest of the country,” Geithner said at a New York conference organized by the Council of Foreign Relations.
“We will never embrace a strategy to weaken the dollar.”
It was the first time this year that Geithner had publicly proclaimed a US strong-dollar policy, a mantra of treasury secretaries for more than a decade.
In the year to date, the dollar has lost 6.5 percent of its value compared with a basket of currencies held by its major trade partners.
But, but…..
Inflation caused by Bernanke’s “Quantitative Easing” may doom Obama’s re-electionHere’s a political equation that ought to furrow the brows of everybody working to get a second term for President Obama: QE1+QT1=DEFEAT.
For those not cursed to be economists, QE1 stands for Quantitative Easing, while QT1 means “Quantitative Tightening. According to Ralph Benko, writing in Forbes, Federal Reserve Board Chairman Ben Bernanke may be about to doom the Obama re-electi effort with that equation.
The problem is Bernanke did a massive amount of QE1 last year, the most politically significant consequences of which - higher prices, or inflation - are just now beginning to percolate into the consumer economy. Think food prices, gas at the pump, and cotton for clothing.
Benko believes Bernanke won’t stand by and watch the economy overheat with an inflationary spiral, so he will resort to QT1, as did his predecessors at the Fed in 2001, 1994, 1990, 1980 and 1973 (Note that recessions four of those five times):
“Now, a withdrawal of excess liquidity — if done with precision — would strengthen the dollar and be good for growth. This is laudable in theory, and not recessionary. A strong dollar is pro-growth.
“In the grim reality of the world dollar system, however, this is virtually impossible. Vivek Ranadivé, the smartest guy in Silicon Valley you’ve never heard of, astutely wrote in 2007, ‘If you applied the Federal Reserve approach to ensuring a suitable temperature in your home, you would turn the heater on and off every three months, overheating or under-heating your house.’”
Benko thinks the “Goldilocks Effect” timing of the inflation now beginning to be seen in the economy augurs a bad outcome for Obama. For more on why and what he believes Bernanke could do to avoid this eventuality, go here.
Read more at the Washington Examiner: http://washingtonexaminer.com/blogs/beltway-confidential/2011/03/inflation-caused-bernankes-quantitative-easing-may-doom-obamas-re#ixzz1KeFgeuFq
- Obama, Geithner Optimistic About Deficit - Wall Street Journal (news.google.com)
- Will an S&P Downgrade Help Geithner Accomplish His Goal of Lowering the Yuan Against the Dollar(businessinsider.com)
- Dollar Weakens Ahead of Fed Decision (online.wsj.com)
- U.S. ‘Strong Dollar’ Rhetoric Fades As Currency’s Value Declines (huffingtonpost.com)
- Euro, Pound Drift Higher (online.wsj.com)
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