Dollar Drops As Great Sell-off Looms

[Once in a lifetime]

http://www.telegraph.co.uk/money/main.jhtm.../ixcitytop.html

Dollar drops as great sell-off looms

The dollar has tumbled to one-year lows against the euro and the lowest level since the 1970s against the Canadian dollar as the markets bet on an end to monetary tightening by the US Federal Reserve.

"Beware regime change. When it turns, it will be totally poisonous for the dollar because the US will have to start paying investors for the risk of financing their massive deficits," he said.

Smaller central banks are already taking precautionary steps. Sweden's Riksbank has slashed its dollar reserves from 37pc to 20pc over the past month, while the United Arab Emirates said it is planning to switch 10pc from dollars to euros.

The European Central Bank is already softening its monetary policy to try to dampen enthusiasm for the euro, stunning the markets last month by shying away from an expected rate rise in May.

"If the euro gets to $1.30 against the dollar there will be another chorus of complaint from the weakest states," said a veteran EMU-watcher.

"If it gets above $1.40, Italy will be blown out of the euro-zone. "

Could this lead to another black Wednesday? as predicted here, by some bears.

[Realistbear]

Fed chief Ben Bernanke set off the slide last week by talking of a possible "pause" in interest rate rises, citing worries about the risks of a "pronounced housing slowdown"

.

This has been superceded by revelations from Ben that he never said that there would be a pause--see thread on this. Looks like the market duped itself. Pound dropped more than 150 ticks on Asian markets when news broke.

[G-Man]

It never ceases to amaze me what headline writers put down on their news broadcasts.

The EUR may have hit a new high yesterday, but then, for whatever reason, sold off dramatically, giving what we technically call a key reversal day. This would infer that lower EUR values are due in the next couple of days, although this would need some confirmation.

Also the US econ data out later this week would probobly prevent any big $ shorts being placed in the market, and the commercial traders are already net short contracts, also suggesting another potential $ rally.

Of course, I could be wrong. If I was right all the time I would still be asleep.

G-Man

[Warwickshire Lad]

I think that the market are saying that they want U.S. Interest Rates considerably higher than where they are right now... where they will stop is anyone's guess. But it seems clear that the gargantuan trade deficit is losing investor confidence.