Wednesday, December 01, 2004

The dollar began it's most recent slide in early September, but it really started tanking in mid-October. Since October 13 the USD has fallen 6.6% on the major currencies index and, thanks to the Chinese peg, a smaller 4.6% on the broad dollar index.

What is interesting to me is the changing currencies against which this dollar pressure is venting.

As you can see from the chart, the three major global reserve currencies besides the dollar all move together from mid-October to early November; then comes the differential venting. First it's the euro, which rises 2% in three days on the dollar in early November while the yen and the pound remain steady. By mid-November it's the yen's turn, rising over 2% in three days; the euro and the pound sit still. Then in late November the yen is stationary while the euro and the pound rise together, both by 2% in three days.

The latest move by the market seems to be to vent on the pound alone by the euro and the yen actually fall back slightly. On November 29 the pound stood at $1.8948 (at noon in New York). As I type, sterling is at $1.927. If recent trends hold true to form, the pound should rise to around $1.933 tomorrow before stopping its ascent and take its place at its highest level against the dollar in over 12 years and as the fastest reserve currency riser this fall.

Global currency markets of late are just like The Scrambler at your local state or county fair. One currency comes flying towards you -- over the course of three days, it seems -- and then is gone, making room for the next in line which then begins hurtling towards you, and so on and so on . . .

UPDATE: It looks like the pound is already hitting $1.933 today. It's anybody's guess now as to how high sterling is going to go. The euro is heading north again as well -- but the yen stays stubbornly in place. Are those poor economic numbers coming out of Japan scaring speculators off, or is it something else . . . ?


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