The Observation Deck

When the Federal Reserve cuts interest rates for a seventh consecutive time this Wednesday, it will begin to wind down a pernicious campaign that has flooded the market with cheap dollars since last summer. At the same time, the whoosh of air from Europe's deflating credit bubble puts new pressure on the European Central Bank to begin cutting borrowing costs in order to goose growth.

The strategy shifts by central banks will drive a greenback comeback against the overpriced euro, turning back the 15% slide that since August has lifted the euro -- to a record $1.60 last week -- even as the dollar continues to struggle against the undervalued currencies of Asia.

Monetary policy isn't the only catalyst for a healthier dollar. "A lot of what has happened since last summer also is emotional, and that can change on a dime," says James Paulsen, Wells Capital Management's chief investment strategist. Among other drivers: mounting evidence that the credit crisis loosening its grip stateside is still tightening across the Atlantic, and a growing belief that the U.S. economy could bottom and rebound before Europe's.

The rehabilitation, ironically, is driven by a weak dollar, which makes bargains of our exports, fills Manhattan's 65,000 hotel rooms with European tourists, and entices foreign giants from Ikea to Toyota to open factories here to exploit our increasingly cheap labor.

Already, the dollar has begun to strengthen against commodity-driven currencies from the Canadian loonie to the South African rand, and odds are it is close to a bottom against the euro, sterling and most developed-world currencies. On top of that, "negatives about the dollar are more fully discounted compared to the potential positives," says Marc Chandler, Brown Brothers Harriman's currency strategist, who expects the euro to pull back to test the $1.40 threshold this year

NEW YORK - Federal rescue plans are all the rage in Washington right now, for what seems to be everything but the dollar. The U.S. currency is not going to get a bailout, even though its steep decline is feeding inflation and straining the economy.

Federal Reserve Chairman Ben Bernanke and other officials have assured us that the government is on the case of the plunging dollar.

Talk is cheap — they won't likely do anything about it.

That's because the Bush administration since taking office nearly eight years ago has not supported any U.S.-led intervention in foreign-exchange markets despite the greenback's steep decline. That action would involve buying the ailing currency to boost its value. AP Business

Stephen Eisel wrote::D

Jim O'Bryan wrote:

Stephen Eisel wrote::D

Stephen

Are you talking about a good day for the US dollar or the Super Bills that are flooding the US from Saudi Arabia and North Korea?

Just curious.


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sharon kinsella wrote:Stephen -

I can't even believe you posted this.

Keep walking on rainbows kiddo.

Jim O'Bryan wrote:where do you get your facts!

NEW YORK - Federal rescue plans are all the rage in Washington right now, for what seems to be everything but the dollar. The U.S. currency is not going to get a bailout, even though its steep decline is feeding inflation and straining the economy.

Federal Reserve Chairman Ben Bernanke and other officials have assured us that the government is on the case of the plunging dollar.

Talk is cheap — they won't likely do anything about it.

That's because the Bush administration since taking office nearly eight years ago has not supported any U.S.-led intervention in foreign-exchange markets despite the greenback's steep decline. That action would involve buying the ailing currency to boost its value. AP Business

More here

http://news.yahoo.com/s/ap/20080718/ap_on_bi_co_ne/all_business



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