Dollar Dives as Bears Sharpen Claws

[Purveyor]

Tue November 18, 2003 07:03 PM ET

By John Parry

NEW YORK (Reuters) - The specter of trade protectionism sent the dollar diving on Tuesday, and currency analysts said it threatens to sink the greenback even more on fears it could slow U.S. economic growth.

Some traders said the dollar's drop to record lows against the euro may have been a market overreaction to limits the U.S. Commerce Department placed on Chinese clothing imports. But some analysts fretted that this could signal a deeper shift toward more protectionist U.S. policies.

"We've seen steel tariffs and now we have the China quotas. Who says it will end here? Overall, protectionism is bad for the dollar," said Sean Callow, currency strategist at IDEAglobal.

"If you slap on tariffs, that raises prices at home and disposable income falls...because people have to spend more on the goods they are buying," said Meg Browne, currency strategist with HSBC in New York.


http://www.reuters.com/financeNewsArticle.jhtml;jsessionid=54WY1FSVKKKPOCRBAELCFEY?type=businessNews&storyID=3847763">Link to entire article

[Code_Name_D]

1. Oh the iornay.

It just burst my buttons to read how the defenders of the free market now have to stoop to the vary forms of proteconisem that they would attack reletlesly if a libiral should utter them.

[nadinbrzezinski]

2. 1930s all over

this is not going to be fun

[Wwagsthedog]

3. I couldn't get your link to work

Try this one from the UK Reuters

http://www.reuters.co.uk/newsArticle.jhtml?type=topNews&storyID=3847705

[rapier]

4. WARNING

The fall in the dollar over the last two years is a big deal. It's recent plunge is potentially a huge deal.

WARNING, This so called news story attributing the dollar drop today to "The specter of trade protectionism" it total complete and utter BULLSHIT.

Every story you ever read attributing some markets move to some event is BULLSHIT. They make nice little stories but that is all they are, stories.

There is no one single reason why any market moves.If you want a nice story about why the Dollar Index plunged over 1% today then at least look to something having to do directly with the foreign exchange market.

How about this: Citicorp, one of the largest traders in global foreign exchange markets and biggest dollar bulls, closed all its existing long dollar positions Tuesday.
http://biz.yahoo.com/djus/031118/1639001518_1.html

Or how about this:
DOW JONES NEWSWIRES

NEW YORK -- U.S. officials have begun arresting 47 people in connection with foreign currency trading issues, with at least ten arrests taking place in downtown Manhattan,

Sorry, no link.

Are these the cause of today plunge. No. The dollar has been reeling for a week. When markets trend strongly greed and fear take hold. In this case the plunge brought on fear at Citibank as they were taking big losses so decided to cut their losses off. Sometimes this sort of capitulation marks the end of a move. In this case who knows.

The arrest of the traders is only coincident with the drop and probably has something to do with more ordinary fraud against the public 'little guy'.

The massive trade and budget deficits and the deteriorating political position of Bush and by extension the US are the only way to tell the story of the weak dollar. Still, it's all just a story. The world is awash in dollars. Their supply has doubled and doubled again over the last 10 years. Little wonder at some point that it occurs to some that they may not be worth so much.

[Code_Name_D]

5. Good catch

You are 100% correct on this. The dollar has been realing for a week now. But its been erroding for the past 2 months. We have been watching this closly here, and I know they have been watching this closly with the daily market watchers in the latest news room.

GoreN4 even called this last year, predicting that contries would start flushing out there dollars. All though it looks like they are doing it in bits and peices, rather than all at once.

All though the marketers tell me that this is deceptive. The dollar exchange, dispide being traded daily, is not a "market indicator" but rather an economic one. The difrence is that a market indicator can shift rappedly, and can change on a dime. But economic one by there nature change slowly, and are usualy slow to change direction. The ups and downs of the dollar can be deceving.

But it is most defantly trending down, and that can only mean it's decline will only accelrate.

But this is the fear. The dropping dollaris a sign that investing in America is becoming less populer. The danger is that if the dollar dropps too far, than the US will not have enugh incoming investments to service its debt.

An analigy is amagine you have to pay $400.00 for a new house you bought. When you bought the boat, the payments consisted of 30% of your income. But like the fool you are, you keep adding on new rooms, or redecorating the kitchen. The new debt jacks up your payment. Mean while, your boss keeps cutting your sallery. So each month, your house payments eats up more and more of your income as the payments grow, and your income shrinks. At some point, your payments are larger than you income, and you start to defult on the home loan.

This is why the shrinking dollar is so important. As the dollar drops, its the same as your boss cutting your salery. But as we keep spending and cutting taxes, growing the deficit, the house payments go up.

At one point, we will simplay run out of money to service that debt. And the US defaults on the debt. Once we default, all of the security strips and color changing ink will not protext the dollar.