Monday, November 27, 2006

Forex News: Dollar Continues to Slump

Forex News

The dollar had a dramatic slump during the weekend across the board. After breaking key resistance at 1.30 versus the euro, the greenback continued to weaken to the lowest since March 2005 at 1.3178, and also dropped to a two-year low at 1.9467 against the sterling.

The main reason behind of this five-day huge decline in the dollar is the fear of U.S. economy cooling down. The Council of Economic Advisers adjusted their forecast of GDP in 2007 from 3.6% to 2.9% because of slowing housing market. Recent weak economic data dampened investor sentiment on the dollar. According to the interest rate futures market, the bets on the Fed rate cut early next year were raised last week.

The concern over central banks' foreign exchange diversification away from the dollar also contributes to the dollar drop. Wu Xiaoling, vice governor of the People's Bank of China said in an academic paper that the reserves of East Asian countries had too much exposure to the falling dollar.


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