Asian Central Banks bailing away at sinking US dollar lifeboat !
(snip)SINGAPORE -- The U.S. dollar continued to tumble against most Asian currencies Thursday, prompting a wave of foreign-exchange intervention by central banks in South Korea, Taiwan, the Philippines and Thailand seeking to limit damage to their export industries.
Traders said the dollar selloff is unlikely to fade soon, given the prospect for a long period of low U.S. interest rates to support a sluggish U.S. economy and increasing signs central banks in Asia will begin tightening monetary policies in the months ahead."(snip)
But the real kicker will be a realization by these foreign central banks that the US dollar cannot be 'propped' via their interventions for very long. As soon as that realization takes place, these foreign central banks could very well decide to 'cut their losses' ... potentially creating a free-fall situation for the US dollar.
(snip)New Normal
That could be a mistake. Central banks will find it hard to keep beating up on investment bankers for the sins of the financial industry without policy makers also showing that they have examined their consciences and found room for remorse. A swifter than predicted return to a more normal monetary-policy environment would be one way of proving that the lessons of the bubble years have been learned.
The U.S. has already scaled back some of its market support mechanisms. Last month, the Fed said it would reduce the Term Securities Lending Facility to $50 billion from $75 billion, and the Term Auction Facility to $50 billion from its $900 billion peak. Banks have repaid more than $70 billion of the cash extended through the $700 billion Troubled Asset Relief Program.
With liquidity seeming to improve, the temptation for central bankers to water down the punchbowl, if not remove it completely, will increase. The one financial bet that does seem misguided for the next year or so is to anticipate that there will be no change in policies, no removal of stimulus, and a smooth glide back to the good old days.
So, don’t be fooled by the clinking glasses in the stock market and the soothing beats in bonds. The music could come to a sudden halt if the central banks, who have been the life and soul of the recovery party, all rush for the exits at once. "(snip)
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Hmmm ... it already looks like the Asian Central Bank US dollar interventions have been wiped out ...