The Dollar’s Decline

The dollar’s downward slide of the past two months is continuing today. The dollar has hit a new record low against the euro, unsurprisingly; but the dollar is also at multiple-year lows against the Canadian dollar, Korean Won, and Swiss Franc, and has declined significantly against the pound and yen in recent weeks. What had primarily been a dollar-euro story now shows signs of turning into a more broad-based decline of the dollar against a wide array of significant currencies. The following chart of FRB data illustrates.

Interestingly, the Japanese Ministry of Finance seems to be allowing the yen to remain below the heretofore critical level of 105 ¥/$ (it’s at about 103 ¥/$ today); the exchange rate has been below that level for a full week now, and the Japanese have not decisively moved to push it back. Some observers are indeed picking up increasing signs in recent days that some major intervention by Asian central banks (other than China, which has never stopped intervening) may be imminent. But if the yen is allowed to move below 100 ¥/$, a reasonable interpreteation might be that the MoF is effectively allowing a revaluation of the yen.

Of course, that would still leave the other big Asian question unanswered: when will China revalue? Nevertheless, the last couple of months have shown that even without a China revaluation, the dollar can still effectively fall quite a bit.