Friday, July 28, 2006

 

US Dollar Falls On GDP Report

The Canadian press reports on why the greenback fell today. "The U.S. Commerce Department's report sent the greenback tumbling on currency markets. The report showed the economy improved by an annual clip of just 2.5 per cent in the latest quarter, falling below market expectations for a three per cent improvement. That reading was only about half of the 5.6 per cent annual rate clocked in the previous January-to-March quarter."

"'It was quite a bit weaker than the market was expecting,' said George Davis, technical analyst. 'What was really a drag on the number was the business investment component. And what we saw right after the number came out was basically the U.S. dollar weakening across the board.'"

"An end to the Federal Reserve's rate tightening is gloomy news for the U.S. dollar, which may extend its decline until next year. Steady rates mean returns from buying U.S. debt will be limited, which would chill demand from foreign investors. And if the U.S. economy is moderating, that means companies won't be seeing such robust growth, making them less attractive as well."

"Furthering the situation is that fact that central banks around the world are bumping up interest rates in response to inflationary pressures. 'Japan is going to continue raising rates, as will Europe,' said Jack Ablin, chief investment officer of Harris Private Bank. If U.S. interest rates level off, 'that spread is going to draw interest from the United States and into those markets.'"

"Gold futures posted modest gains Friday as a report of a slowdown in second-quarter GDP growth triggered a fall in the dollar. Gold for August delivery settled up $2.30 at $634.80 on the New York Mercantile Exchange, a gain of 2.4% on the week."

"Silver edged down 2.5 cents at $11.365 an ounce, platinum dropped $8.30 at $1,233.70 an ounce and palladium declined $6.30 at $314.15 an ounce."

"'With today's action putting the dollar in significantly oversold territory, there's a pretty good chance of a turnaround in the dollar near-term,' said Dale Doelling, market technician. 'If this occurs, it will most likely put pressure on the metals complex as August gold has moved up near trend-line resistance with today's rally.'"

From Reuters. "An International Monetary Fund staff assessment of the U.S. dollar has estimated it is overvalued by 15 percent to 35 percent. 'The real exchange rate appeared significantly overvalued, especially given the projected deterioration of U.S. net foreign liabilities,' IMF documents said on Friday that detail annual economic consultations with U.S. officials."

"'A staff assessment using macroeconomic fundamentals estimated the overvaluation in the 15-35 percent range,' the documents say."

Comments:
PM and specifically Gold is gonna get one heck of a pump without a Fed rate hike at the next meeting.

Sure they will jawbone to death how strong the dollar is, but the market is starting to catch on.

Gold $750.00 by end of the year?(really not a stretch)
Gold $2000.00 by the end of 2007?
(too soon to tell, but the trend is looking to continue)

OCBear
 
The weak $ theory seems too prevalent. Popular opinion is almost universal that it's going to fall. I'm normally a contrarian, so this bearish talk leads me to think everyone must be missing something. Maybe deflation suddenly appears and the $ strengthens? Any thoughts?
 
The "Race for the Bottom" in devalueing fiat currency's is something that is happening now. I truly believe inflation will continue and probablly accelerate.

I agree a falling dollar is getting a lot of play, but it is not as easy to get out of it as it's what everyone is tradeing in.

Before everyone in here beats me up on methods to get out of and protect yourself against a falling dollar, that is one of the reason's we come here and talk about this, I still believe we are ahead of the curve.

The Herd is complacent in emercing itself in US$ existance as it slowly devalues, if it ever picks up steam and Joe Schmoe catches on....look out......P
 
I posted this on Ben's houseing Blog, but thought those here might be interested.

http://research.stlouisfed.org/publications/mt/page6.pdf

It is charts on money supply. Look at the plunge in M1 the last couple months.

Fear in lending and borrowing is a reality. It's such a quick swing, kinda suprised me.

OCBear
 
OC: Nice link. What I found interesting was the footnote to the M1 chart: "Actual values for September and October 2001 are 55.87 and -38.35 percent rate, respectively." Think we'll be seeing a repeat of that any time soon?
 
I have seen other charts that show a real spike up after 9/11 and a huge spike down couple months later referencing those #'s these charts seem to miss it on the chart but do supply the #, so I do not actually think we will see spikes to the negative,but perhaps a grind down or at least a continual trend sideways in the negative.

The spike up was the Fed flooding the markets after 9/11, the spike down was the fall-out for the markets of 9/11.

Some people think the guberment doesn't mettle...fools...p
 
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