Bye, bye dollar by Claudia Sonea

The United States' housing market and a worsening credit crunch determined Fed to take a dramatic action this week. The half-point cut in its benchmark interest rates weakened the dollar against other currencies, although the main goal was to revive credit markets. However, the central bank is too less concerned about the value of the nation's currency, according to Michael Woolfolk, senior currency strategist at the Bank of New York. So the recent decline means more expensive trips to Paris, Rome Bangalore and Toronto, but from the point of view of export it might turn out to be profitable. Thursday, for the first time since November 1976, the US dollar became equal to Canadian dollar, so the prices in New York are the same with the ones in Toronto. David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. Stated that Thursday drop doesn't necessarily mean it will meltdown, but it is definitely a matter of greater concern than U.S. households. The result has two sides; on one hand exports become more competitive and on the other the prices for imports to the U.S. will boost up. Also the number of American tourists has become scarcer, while foreigners tempted by cheaper accommodation choose USA as a holiday destination. Despite the fact that Fed's decision weakened the US dollar strength, the Canadian dollar would have rise without the rate cut, because it is a major oil exporter and it has benefited from soaring crude prices and a strong economy. Woolfolk said that dollar's decline was too gradual for the Fed to worry about inflation. Replacing the dollar as a reserve currency of choice, the 13-nation euro reached a 1.40 key benchmark against the American currency. Due to the India's booming economy the rupee rose to 39.92 per dollar in intraday trading and for the first time the greenback lost ground against the nine-year old currency. Moreover, it doesn't come as a surprise that the pound has gained terrain and worth now $2.0099. Bad news are also for the government that are left without foreign investors because of their currency weakening, therefore being forced to pay higher rates at weekly auctions to find buyers for its bills, notes and bonds.

related story: http://news.yahoo.com/s/ap/20070920/ap_on_bi_ge/dollar;_ylt=AqP8CbbRKCdzBaqE86geJces0NUE

by Claudia Sonea for PocketNews (http://pocketnews.tv)

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