chart of the week - the Dollar Index
Many US based Dollar Den readers may not be aware that their own 'perceived value' of their US dollars doesn't necessarily jive with the actual 'value' of those US dollars in the world market. In point of fact, the global 'purchasing power' of those US dollars goes up and down a lot ... and in the process affects everything from their own US dollar denominated price of world market commodities ( energy, food, precious metals ), to the number of jobs at US exporting companies ( like Boeing and John Deere ), to the level of the US stock market indexes ( where a rising index times a falling US dollar = break even for foreign investors ), to the 'purchasing power' of the US dollars in their savings account.
At any rate, the measurement of the US dollar's global 'value' is the Dollar Index ... which is a measure of the US dollar's value in relation to many other world currencies.
http://3.bp.blogspot.com/_KG80QXSP9Q...1600/fig+1.jpg
some 'professional commentary' ...
(snip)"Dollar Devaluation: Pushing On A String?
Through the ups and downs of the stock market over the last 3 months, there has been one constant: the Dollar Index has gone down. This is surprising as the Dollar has barely managed a bounce following a very strong up move from November, 2009 to June, 2010. Even its safe haven status in times of market turbulence is now in question as traders have moved on to the Swiss Franc or Japanese Yen.
The weakness in the Dollar Index is understandable as the Federal Reserve is hell bent on Dollar devaluation and apparently, the FOMC is targeting an inflation level. As expected, Dollar weakness has led to strength in gold, which is at new highs, but the stock market really hasn't caught fire. While I personally disagree with the policy to have my purchasing power diminished, Dollar devaluation has led to asset inflation over the past couple of years. Stocks are not immune from this and equities have performed very nicely while the Dollar was trending lower.
The relative lack of performance in equities over the past 3 months makes one wonder if this policy of Dollar devaluation has lost its effect. In other words, is the Fed pushing on a string? The declining Dollar over the past 3 months really has not had an effect on equity prices, which are at levels seen in January, 2010 and in June, 2010. We know that a rising Dollar is unlikely to be good for stocks and now it appears that a falling Dollar doesn't matter either.
For the record, figure 1 is a weekly chart of the Dollar Index. Key pivot points (areas of buying and selling) are noted on the chart. Longer term indicators and studies (not shown) suggest that the Dollar Index has the potential to be in a sustainable up trend that would be a continuation of the move earlier in the year, but the price action suggests that we are in a down trend as prices are below prior support levels. "(snip)
from
Re: chart of the week - the Dollar Index
with this follow-up from Mike Shedlock ...
(snip)"Global Competitive Debasement
Bloomberg reports BOJ May Have Acted First in Renewed Round of Action
The unexpected decision by the Japanese central bank yesterday to drop its interest rate to “virtually zero” and expand its balance sheet follows the U.S. Federal Reserve’s move toward more unconventional easing. Bank of England officials will consider further stimulus tomorrow, while the central banks of Australia, Canada and New Zealand are among those now holding fire on further interest-rate increases.
The renewed push for easier monetary policy comes as the International Monetary Fund warns growth in advanced economies is falling short of its forecasts ahead of its annual meetings in Washington this week. The dilemma for policy makers is that their actions may do little to revive growth and end up roiling currency markets.
Bank of Japan Governor Masaaki Shirakawa may not be alone for long in taking action and Daiwa Institute of Research argues he’s now engaged in a “vicious spiral” of monetary easing with the Fed as both compete to bolster their economies.
“The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world,” Joseph Stiglitz, a Nobel Prize-winning professor at New York’s Columbia University, said today in New York.
The ECB will be forced to postpone tighter policy as European exports fade and investors continue to fret about peripheral euro-area economies such as Portugal and Ireland, said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Inc. in London.
“The ECB’s exit strategy is fully on, but the business cycle will turn against them,” said Peruzzo. “The communication will then be adjusted to consider downside risks greater than what they have anticipated.”
The ECB last week stepped up its government bond purchases as the cost of insuring against default on Portuguese government debt surged to a record and Irish bond spreads soared to euro- era highs.
Another risk is that the use of unconventional monetary policy is viewed as an effort to weaken currencies to boost exports, rising competitive devaluations and protectionist responses, said Eric Chaney, chief economist at AXA Group in Paris. Japan, Switzerland and Brazil are among the countries that have already intervened in markets to restrain their exchange rates.
“This is close to a currency war,” said Chaney, a former official at the French France Ministry. “It’s not through exchange-rate manipulation, but through monetary policies.”
Currency Wars
This is not "close to a currency war" this IS a currency war.
While I have had numerous differences of opinion with Joseph Stiglitz, he is absolutely correct when he says “The irony is that the Fed is creating all this liquidity with the hope that it will revive the U.S. economy. It is doing nothing for the U.S. economy and causing chaos for the rest of the world.”
Moreover what Stiglitz says about Bernanke and the Fed, applies equally to the Bank of England, the Bank of Japan, and the central banks of Canada and Australia as well.
Message of Gold
The competitive currency debasement can be seen in the price of gold and silver.
None of these central bank measures are doing a damn thing for the real economy (in the US or anywhere else), but it sure has ignited a fire in gold and silver.:(snip)
from
I would also add that the US dollar index has now broken 78 to the downside !