Dollar Hits New Multimonth Low, Threatening Long-Term Support Level

"Dollar hits new multimonth low vs euro, pound, yen", from Breitbart.com.

"The dollar kept falling Friday, notching fresh multimonth lows against the euro, pound and yen as a warning that Britain's debt level may result in its credit rating being cut ricocheted into worries about the massive U.S. deficit.

"Because Britain is pursuing similar policies to the U.S.—with both the Bank of England and the Federal Reserve injecting billions of dollars in their economies by buying assets from banks—the move also weighed on U.S. assets and the dollar. Treasurys sold off Thursday, and continued to do so Friday.

"Earlier this month, the Obama administration hiked its forecast for this year's federal deficit to $1.84 trillion. The deficit is approaching $1 trillion for the budget year that began Oct. 1.

"Big deficits mean the government has to borrow more, which could put its credit rating at risk. They can also put upwards pressure on inflation, thus cutting the purchasing power of the dollar."

You can read the rest in the link I provided at the top of the post.

But here, to put things in perspective, I called up the long-term chart of the US Dollar Index (spot) and put in the key long-term economic events. It is a monthly chart from November 1985, with tiny dots indicating the pre-Nov 1985 index level (which I roughly connected).

US Dollar ended this week with five consecutive down days. Four out of the past 5 weeks saw US Dollar decline. So far, we've had five consecutive months decline, with the pace of decline accelerating. Right now, it is on the long-term support level at 80.

As you can also see in the chart, we may have the first case of "Economic Bust and US$ Bust" in this current recession. Not a very pleasant thought.

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FYI, Plaza Accord was to devalue US Dollar against German Mark and Japanese Yen, in order to reduce the US deficit and make US exporters competitive. The move was to counter the effect of artificially strengthened US dollar under Paul Volcker.

Plaza Accord also led to the real estate bubble in Japan in the late 80's, as the Japanese government tried to stimulate the economy suffering the effect of strong yen with cheap credit.

Louvre Accord was to stop the decline of US Dollar. Plaza Accord worked too well, I suppose.

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