The Dollar continues to drop


This is really worrying me. As the dollar sinks further and further, there is a risk that foreign investors will not only reduce investment in US debt, but will start selling what they do have, causing a full-blown currency dump. Remember Asian markets in 1999?

Even if that doesn't happen, a continued slow and steady decline of the dollar will mean that interest rates will have to go up to continue to attract enough cash for our demand for a current account deficit. Low interest rates are one of the only reasons that we have a marginally growing economy, and higher rates would strangle the recovery in its cradle.

How much has the dollar lost? Roughly 6 percent since I was in Ireland in mid-October. 17 percent over the year. Many economists thought the dollar needed to drop 15-20 percent to get it back to fair value. But I'm afraid we may overshoot and the decline may become disorderly.

Stocks End Near Flat After Dollar Sinks
By Vivian Chu

NEW YORK (Reuters) - Stocks ended a choppy session nearly unchanged on Wednesday after the dollar sank to another record low against the euro and rekindled fears that currency weakness would curb foreign investment in the United States.

A weaker dollar raises fears foreign investors, faced with getting less bang for their buck in dollar-denominated securities, could curb the flow of money into U.S. assets, which fund the huge U.S. current account deficit.

(SNIP)

In late New York trade, the euro hit a record $1.2422 , its 12th record high in the last 14 trading sessions. Against the yen, the dollar traded in a narrow range against the Japanese currency, testing the lows near 107.25 yen before easing back to 107.40 yen. Low U.S. interest rates and record high budget and current account deficits have been weighing on the dollar for some time.

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