Active Stocks
Thu Mar 28 2024 15:29:14
  1. Tata Steel share price
  2. 156.10 2.13%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,446.65 0.41%
  1. ITC share price
  2. 427.85 -0.04%
  1. Power Grid Corporation Of India share price
  2. 277.15 2.25%
Business News/ Opinion / Online-views/  Sliding dollar points to US debt imbalance
BackBack

Sliding dollar points to US debt imbalance

Sliding dollar points to US debt imbalance

Premium

Last week wasn’t a bad one for the dollar in the markets. The dollar index, which measures the US currency’s value against six trading partners, rose by 0.5%. But that still leaves it down 7% since August. The news from Riyadh, Cape Town, Washington, DC, and Luxembourg all points to further declines of the currency.

At the Organization of the Petroleum Exporting Countries (Opec) summit in Riyadh, only Venezuela and Iran—countries with grudges against the US—were willing to call publicly for non-dollar oil prices. But the Saudi hosts are wavering. The foreign minister warned privately about a dollar collapse, while the Saudi central bank is dropping hints that the riyal might need to change its exchange rate with the dollar, which was fixed in 1986.

The news from Cape Town was the silence of the world’s leaders, in this case meeting as the G-20. They could do no more than murmur about “greater exchange-rate flexibility." If China takes their advice, the dollar will fall against the renminbi. If not, the dollar is likely to keep falling against unfixed currencies, until and unless governments or investors come to its rescue.

The Federal Reserve Board, the Washington, DC home team, financially speaking, wants to tough out pressure from New York traders, who are 94% sure that the overnight interest rate will be cut again on 11 December.

If the central bank yields, international investors will be even more confident that the US government doesn’t care about the dollar’s value. But if the Fed holds out, the dollar could lose anyway, if traders think that tighter financial conditions will squeeze US economic activity.

Luxembourg is the home of ArcelorMittal. On Monday, the world’s largest steel maker announced a $40 (Rs1,572) per tonne increase in US prices, compared with zero in Europe.

If the new prices stick, the American cost of steel will have risen by 10% in a quarter—it’s inflationary, hurts exports and weakens the dollar.

For the last quarter century, the US has been falling ever deeper in debt to the rest of the world, an imbalance which is getting harder to sustain. Expect some more bad weeks for the dollar.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 19 Nov 2007, 11:13 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App