Dollar Down! Good for the Federal Reserve!


Save your greenbacks, boys, the U.S. government will rise again! Maybe. Tom Petruno in the Los Angeles Times on the one-hand, on-the-other-hand on the latest dollar news (via BND.com):

the dollar isn't collapsing—not yet, anyway. It is, however, weak and getting weaker…..

A closely watched index of the buck's value against six other major currencies, including the euro and the yen, fell last week to its lowest level since August 2008.

The DXY index, so named for its ticker symbol, fell for a fourth straight week to end Friday just above 74, making a loss of more than 6 percent for the year to date. If the index slides 3.7 percent from there, it would drop through its all-time low of 71.33 reached in April 2008.

Hooray…right? Well, a falling dollars all right, if you like high-exporting big corporations:

The benefits of a declining dollar showed up last week in first-quarter earnings reports from multinational companies such as IBM Corp., Intel Corp., United Technologies Corp., Johnson & Johnson and Honeywell International Inc. All reported results above expectations, thanks to robust global demand for their goods and services.

And good for the Federal Reserve, as at least one of its policies achieves its goal, apparently.

Downward pressure on the dollar has been one objective of the Federal Reserve's easy-credit policy, as it holds short-term interest rates near zero and pumps money into the financial system via purchases of Treasury securities. The market sets currency values based on a number of variables, but a crucial one is a country's interest-rate levels: If higher rates attract more capital to a currency, its value should rise.

While the Fed keeps credit loose, central banks in Europe, China, India, Brazil and elsewhere around the globe have been raising interest rates to combat energy and food inflation.

And it's been good for commodity speculators, as any anticipation of monetarapocalypse ought to be:

Global investors have another dollar-related incentive to pile into commodities: If they expect that the U.S. won't rein in its record budget deficits and that Treasury borrowing will continue to mushroom, hard assets become a potential hedge against fiscal calamity that could drive interest rates sky high.

And in what all decent folk would assure you is completely unrelated news, gold at $1507 an ounce; silver at 2 cents below $47 an ounce.

Peter Suderman from earlier on the failure side of current Federal Reserve policy.