The dollar’s slide: 1/3 down and falling faster

We’ve posted this before - but as the ailing US currency drops through $1.47 against the euro and $2.10 against sterling, it merits a second (and updated) airing.

The chart comes from Sempra Metals, who make a couple of additional points:

* The US dollar has now lost more than a third of its value (-35%) against a basket of major currencies since Feb 2002.

* The decline is accelerating. The USD has shed -12.5% of its value in the last year, -3.5% in the last month, and -1.5% in the last week alone.

A top Chinese official calls for the country to divest out of the Dollar

The U.S. dollar stumbled to new lows on Wednesday after a top Chinese official called for the country to shift more of its huge foreign exchange stockpiles out of the beleaguered greenback.

Cheng Siwei, vice chairman of the Standing Committee of the National People’s Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion of currency reserves into “stronger currencies,” such as the euro, to offset “weak” currencies like the dollar.

He also said a rapid appreciation of the yuan is not necessarily the right move — as Washington and increasingly Europe are requesting — though Cheng insisted the country wasn’t actively seeking a major trade surplus.

The reports sent the beleaguered dollar to new lows against the euro, with the shared currency surging as high as $1.4703 from $1.4559 late Tuesday.

The Japanese yen also rallied, with the dollar falling to 113.52 yen from 114.71 yen. The British pound surged to $2.1025 — the first time sterling has broken $2.10 since May 1981 — from $2.0866.

Gold futures, which traditionally move in the opposite direction to the dollar because of their role as an inflation hedge, jumped $23.40 to $846.80 an ounce, and rose as high as $848 an ounce during the European morning. Oil futures rose above $98 a barrel in electronic trading.

“As if ballooning U.S. credit/ housing crunch data, back-to-back Fed cuts and soaring oil prices weren’t enough to stun the U.S. dollar, now we have the specter of central bank reserve asset diversification out of U.S. dollars to contend with,” said Vincent Chaigneau, the head of fixed income and foreign currency strategy at Societe Generale, in a note to clients.

Ready for a rout?

The dollar’s decline accelerates

YOU know that nerves are taut when a couple of stray comments set off a flurry of selling. The dollar fell sharply on Wednesday November 7th after mid-ranking Chinese officials, not actually responsible for foreign-exchange policy, made remarks that were seized upon by already jittery markets. A Chinese parliamentarian called for his country to diversify its reserves out of “weak” currencies like the dollar and another official suggested that the dollar’s status as a reserve currency was “shaky”. The greenback reached $2.10 against the pound and a new record of $1.47 against the euro, before recovering slightly. A widely traded index, which tracks the dollar’s value against six major currencies, also fell to a new low.

The sliding dollar, along with record losses from General Motors, the threat of $100-a-barrel oil and more bad news from the mortgage industry, spooked Wall Street. On November 7th the Dow Jones Industrial Average fell by 2.6% and the S&P 500 index by almost 3%. To add to the worries, Nicolas Sarkozy, France’s president, ramped up the political rhetoric on a visit to Washington.

Alarmed that the weak dollar boosts America’s competitiveness relative to Europe’s, he told Congress that George Bush’s administration needed to do something about the dollar or risk an “economic war”. Wall Street seers wondered whether official intervention to prop up the dollar was on the cards.

A true dollar crisis has long been one of the more frightening possibilities for the world economy. If foreign investors suddenly abandon America’s currency and the dollar collapses, financial markets could crash while the plunging currency constrains the Federal Reserve’s ability to cut interest rates. That fear is exacerbated by rising concerns about higher crude oil and food prices.