Apr 25, 2011

Growl... weak dollar means more higher prices. Sigh.

Don't Like a Weak Dollar? Might as Well Get Used to It

By: Jeff Cox  CNBC.com Staff Writer
Weakness in the US dollar, which is causing everything to go up—including gas prices, food and stocks—is unlikely to go away soon as a selling frenzy hits the currency market.


The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world's predominant national currencies.

A combination of factors accounts for the weakness, with the Federal Reserve's easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.

In short, as trader Dennis Gartman noted Thursday, "the rout of the US dollar" is in full effect.   "Panic dollar selling is setting in," Gartman, a hedge fund manager and author of "The Gartman Letter," wrote in his daily commentary. "This may carry farther than any of us dream of or, worse, have nightmares of."

How low can it go?

Rick Bensignor, chief market strategist at Dahlman Rose in New York, said the dollar index [.DXY  74.02    -0.09  (-0.12%)   ], which measures the greenback against a basket of select other global currencies, has scant technical support "that has any meaning" between its present level and the historical low of 70.70.

That's a widely shared view, even as currency pros wonder how the dollar could be falling against the euro considering the near certainty of sovereign debt defaults in smaller European Union nations.

Jeff Cox
Staff Writer
Gartman described the dollar as being in "serious jeopardy" because of its status against the euro, which was defended recently as European Central Bank President Jean-Claude Trichet announced a rate hike in the zone.

No such defense is being offered in the US, where neither Fed Chairman Ben Bernanke nor most of the rest of the central bank's Open Market Committee seems much in the mood to raise rates despite the anemic dollar. Though the Fed is ostensibly apolitical, there is no pressure as well from the Obama administration to boost the dollar's value.

Some economists believe that a weak dollar is contributing heavily to the surge in prices at the pump, with one speculating that gas could reach $6 a gallon or beyond by summertime, given certain conditions. 

Food prices also are on a steady climb higher. In both cases, a weak dollar is at least somewhat to blame as it drives commodities, which are priced in dollars and therefore cheaper and more attractive to speculators in the global marketplace.

But the stock market has enjoyed the weak dollar.

© 2011 CNBC.com

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