[OPE] USD weakness: Stiglitz and other pundits

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Mon Sep 14 2009 - 10:15:44 EDT

9. September 2009 Joseph Stiglitz "Nobel prize in Economics (2001)" said
that the financial crisis could present a "W" shaped behavior; it means that
the hard days could have a second trend soon. Stiglitz argument influenced
that the U.S. dollar on Tuesday fell to its lowest level against the euro
this year as volume returned after a summer calm in attitude. Analysts said
the dollar could resume seasonal declines as liquidity increases after a
short period in which the greenback rose following upbeat economic
indicators in Forex accounts

14 Sept (Bloomberg) Assessing government's contribution to economic output,
which ranges from 39 percent in the U.S. to 48 percent in France, is one of
the shortcomings of the GDP model, as is its difficulty in estimating
improvements in the quality of products such as cars instead of just
quantity, Stiglitz said. Similarly, increased household debt may drive up
output numbers, even though that doesn't amount to a real increase in
wealth, he added.

Sept. 14 (Bloomberg) -- Foreign-exchange markets have embarked on a "silly
September" as traders focus too much on government debt in the U.S. and U.K.
while pushing up the value of the yen, said Goldman Sachs Group Inc.'s Jim O'Neill.
"There is a very popular notion that you've got to sell the pound and the
dollar because of the rising government debt, whereas the one that everyone's
seemingly buying is the yen," O'Neill, head of global economic research at
Goldman, said in a Bloomberg Television interview in London today. "It's
ridiculous" and "I think of it as 'silly September.'" Currency strategists
are trying to calculate which economies will benefit most from signs of a
global economic recovery. While the dollar has dropped 11 percent in the
past months on a trade-weighted basis, the yen has appreciated 9 percent
against the U.S. currency and 6 percent against the pound since April. "If I
look at the underlying fundamentals, virtually everything that drove the yen
stronger in its floating exchange history isn't there anymore," O'Neill
said. "The yen doesn't deserve to be anywhere near this, and I don't see it
lasting." http://www.bloomberg.com/apps/news?pid=20601087&sid=abvf8tiNFG74

Dollar weakness has carried over into the autumn trading season as investors
assumed it would. (...) In a world of low interest rates, U.S. levels are
among the lowest, and so the dollar has taken on the aura of a carry trade
liability currency. (...) A carry trade image on a currency that offers
few prospects of appreciation on other considerations is an open target for
speculators. Moreover, the dollar tends to be softer in the autumn season
than other times of the year.

- September is the final month of Japan's fiscal first half and a month when
Japanese corporations have accounting incentives to repatriate funds home.
- The Obama administration is fighting many wars but conspicuously silent
about dollar depreciation, which it may welcome as long as such stays
- Foreign officials in China and elsewhere have not protested dollar
weakness lately as loudly as they did a few months ago.
- The U.S. trade deficit recorded the largest monthly increase in July since
2006 and may produce more negative surprises to mitigate GDP recovery.
- Gold has climbed above $1000 to record highs. While partly a symptom of
eroded confidence in the dollar, the attainment of such a milestone draws
attention to the dollar's vulnerability and may thereby promote further
diversification away from the U.S. currency. (...)

The most plausible scenario for a broad dollar upturn would be a marked
relapse in the nascent global recovery and big equity market retrenchments.
Nobody wants to go there, even if it helped restore the dollar's image
temporarily. Besides, that script seems unlikely over the balance of this
year, because of the momentum shown by developing economies and the positive
inventory cycle that will exaggerate the improvement in G-7 growth. (...)

"If we have a recovery at all, it isn't sustainable," Kevin Harrington,
managing director at Clarium, said in an interview at the firm's New York
offices. "This is more likely a ski-jump recession, with short-term stimulus
creating a bump that will ultimately lead to a more precipitous decline
later." http://www.bloomberg.com/apps/news?pid=20601087&sid=auGWGWlnohNo

SAN DIEGO (Reuters, 14 Sept) - The severity of the U.S. financial crisis
exposed investors' need to whittle down a dependence on dollar-denominated
assets and diversify globally, two of Wall Street's most influential figures
said on Sunday. http://www.reuters.com/article/newsOne/idUSTRE58D12V20090914

New Zealand's recession may be over, but the country's strong currency which
has recently surged to a 12 month high against the US dollar was at odds
with its low growth outlook and interest rates, Finance Minister Bill
English said Tuesday. The New Zealand dollar, which gained 12 percent on the
US dollar in the past three months, and traded at 69.36 US cents Tuesday,
appeared to be 'out of line with New Zealand's fundamentals', English told
Radio New Zealand. 'It will be interesting to see what happens over the next
six months or so as Australia starts to raise their interest rates because
their economy is growing and New Zealand interest rates stay flat,' he said.
'We can't influence it directly but the fact that it is high means that we
need to concentrate urgently on the competitiveness of our exporters so they
can be competitive and can provide jobs even when the dollar is high.'

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