Sunday, February 06, 2005
More Bad News For The Dollar
Russia said yesterday it had abandoned efforts to tie the rouble's movement
closely to the dollar and switched to shadowing both the euro and the US
The move heightened expectations that
other countries operating de facto dollar pegs, such as China, could follow
With 81 per cent of Russia's oil exports currently sold to Europe, the move also provoked fresh speculation that Russia could decide to denominate its oil in euros. Russia is the world's second-largest oil exporter, behind Saudi Arabia.
"Russia has talked about the idea of pricing its oil in euros. If it is starting
to put more weight on the euro in terms of its forex regime and reserves, then
that speculation will be re-ignited," said Ian Stannard, currency strategist at
I think we can probably catagorize this one in the file of "underreported stories". Now, granted, Russia hasn't completely abandoned the dollar:
The Bank of Russia said it has been using a basket consisting of 0.1 euro and
0.9 dollars to target exchange rate policy since February 1. With the euro
trading near $1.30, this currently gives the euro a 13 per cent weighting in the
... but certainly this is not a step in the right direction for the American currency. I'm guessing that we can expect more kissing of Moscow's collective ass in the upcoming months, even while Putin takes his country further down the road of socialist fascism.
In a piece of good news, Alan Greenspan shows that he's still a financial Superman and by the virture of a few gold-plated words, manages to bump up the dollar's value by a couple of cents in a few hours:
Speaking in London, Mr Greenspan stressed that the combination of market forces and greater budgetary discipline in the US should allow a reduction in global economic imbalances. Officials from other G7 countries repeated calls for more
urgent action to address the US's current account and budget deficits.
The dollar had fallen earlier in the day to a low of $1.3043 to the euro, compared
with $1.2954 on Thursday, following a weaker-than-expected employment report,
but Mr Greenspan's comment prompted a rally to $1.2872.
The problem I see here is that his comments only address the issue of trade deficits, and not what I feel to be the larger issue of federal, corporate, and personal debt. And even if European companies decide to protect their profit margins instead of engaging in a price war with American firms, I see nothing here that indicates that Asian firms will do the same.
I found some interesting reading on the whole dollar issue here. It leans heavily towards the "sky is falling" side of the debate, but then again, I think that's the only sane view to have on this situation. I'm sure Oberon will have funding picking through that site.