Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A One-Two Punch for the US Dollar from the East

Currencies / US Dollar Sep 28, 2007 - 08:44 AM GMT

By: Money_and_Markets

Currencies

Jack Crooks writes: The U.S. dollar index has just plunged to its lowest level of all time.

Back in 1992, its extreme intraday low was 78.19. Yesterday, it reached 78.16 – a historic event that signals a stronger and more imminent cascade of selling to hit the dollar from all sides.


Already Black and Blue, the Dollar Could Get Hit by a Powerful One-Two Punch

Right now, I see two very real – and growing – threats to the dollar. And it's important that you understand these threats because they could easily turn the dollar's 12-round fight into a sudden knockout.

Either one could send the greenback reeling. Together, they could prove to be an extremely powerful combo:

Punch #1: Saudi Arabia and Gulf Nations Hold the Fate of the Dollar in Their Hands

Last week I told you how Saudi Arabia delivered a smack in the face to the Federal Reserve. Namely, the Saudi government opted not to loosen up its monetary policy after Bernanke slashed U.S. rates by half a percentage point.

Remember, the Saudi currency, the riyal, is pegged to the U.S. dollar. So in order to maintain that peg, they'd have to stick with a policy consistent with ours.

This begs the question: How will Saudi Arabia avoid the next step, as Kuwait did earlier this year, and formally break its dollar peg?

It probably won't! Indeed, Saudi Arabia is fed up with the dangerous side-effects of being pegged to the struggling buck. Like other oil-rich gulf nations, the country is being paid for its oil with an ever weakening currency. Inflation is surging, while the value of all the Kingdom's surplus dollars are sinking fast.

There are three possible Middle East moves that could seal the dollar's fate …

First, the Saudis could begin unloading their dollars by selling off their massive stash of dollar reserves.

Second, other oil-rich nations may follow the Saudis' lead.

Third, these oil-rich nations could eventually decide to price their oil in other currencies! A few years ago, this would have been unthinkable. Now, it's being widely discussed and seriously considered. It just goes to show you how quickly the tables can turn.

Any one of these three moves would ultimately mean more pain for the greenback. And if we see all three events unfold, the dollar would meet Mr. Canvas in a hurry.

To make matters worse, the Middle East isn't the only region duking it out with the dollar. The Far East could also start slugging away …

Punch #2: Inflation Rubs China the Wrong Way. So Asian-Block Currencies Could Rocket Higher

Unfortunately, the same thing that's bothering Saudi Arabia – inflation – is also pestering China. In fact, China's inflation rate just spiked to an annualized ten-year high of 6.5%.

Here's why that poses such a big problem:

Much of China's population is made up of working class citizens who perform heavy labor and receive light paychecks. So the percentage of household income devoted to basic necessities is far higher than in the West, and there's no room for price increases on basics like food and energy.

That's why Beijing took the unusual step last week of declaring a freeze on prices on many key commodities. But price controls almost never work in the real world. And that leaves China with only one other option:

China could allow its currency to appreciate, which would push the dollar down further …

A more valuable currency effectively reduces the cost of a country's imports, precisely what China needs right now to offset inflation.

Before, the West was pushing China to revalue its currency higher, but China was resisting. Now, both China and the West will be on the same page.

Result: Expect to see a much faster appreciation in the value of the Chinese currency over the next couple of months. That's bad news for the dollar for two reasons:

A. China will have less need to hold so many dollars in its currency reserves. That immediately translates into less demand for the buck.

B. A rising Chinese currency will drive up the value of most other Asian currencies, too. Many other Asian nations either explicitly or implicitly suppress the value of their currencies to stay competitive with cheap Chinese exports. So wherever China's currency goes, other Asian currencies will likely follow.

Important note: Japan is China's biggest export competitor. So you could expect the yen to rise sharply if China let its currency gain.

Look, I hate seeing the dollar take a beating as much as anyone. But there's no denying that it's fighting for its life right now. I will be watching from my ringside seat, and if I see major moves about to happen … you'll be among the first to know.

Best wishes,

By Jack Crooks

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in