The Dollar Falls to $1.50 Against the Euro

Ben Bernanke is speaking again today on Capitol Hill. This is the start of his big semi-annual testimony before the House and Senate.
I’ve gone to the previous few hearings (even snagging the seat right behind Ben), but honestly, it’s not that interesting in person. The room is almost completely empty, and the questions from members of Congress are a bit embarrassing.
Yesterday, the U.S. dollar, for the first time, traded below $1.50 to the Euro.

The U.S. currency slumped against 15 of the 16 most-active counterparts after Fed Vice Chairman Donald Kohn said turmoil in credit markets and the possibility of slower economic growth pose a “greater threat” than inflation.
Kohn’s comment “confirmed the Fed will keep cutting interest rates,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world’s biggest currency trader. “That brought more downward pressure on the dollar.”
The dollar fell to $1.5047 per euro before trading at $1.5017 at 7:47 a.m. in Tokyo from $1.4979 yesterday in late New York. The U.S. currency traded at 107.24 yen, following a 0.7 percent decline yesterday.
Boyton forecasts a dollar drop to $1.55 per euro in the next three months. He’s more bearish than the consensus. The dollar will rebound to $1.48 per euro by the end of March and to $1.40 by year-end, according to the median forecast in a Bloomberg News survey of 41 analysts.
The U.S. currency has lost about a quarter of its value in the past five years, according to the Fed’s U.S. Trade Weighted Major Currency Dollar index, which comprises seven currencies of U.S. trading partners. The weaker dollar has made U.S. goods cheaper abroad, boosting exports to a record and shrinking the nation’s trade deficit last year for the first time since 2001.

Here’s Bernanke’s entire testimony. This is a sample:

As part of its ongoing commitment to improving the accountability and public understanding of monetary policy making, the Federal Open Market Committee (FOMC) recently increased the frequency and expanded the content of the economic projections made by Federal Reserve Board members and Reserve Bank presidents and released to the public. The latest economic projections, which were submitted in conjunction with the FOMC meeting at the end of January and which are based on each participant’s assessment of appropriate monetary policy, show that real GDP was expected to grow only sluggishly in the next few quarters and that the unemployment rate was seen as likely to increase somewhat. In particular, the central tendency of the projections was for real GDP to grow between 1.3 percent and 2.0 percent in 2008, down from 2-1/2 percent to 2-3/4 percent projected in our report last July. FOMC participants’ projections for the unemployment rate in the fourth quarter of 2008 have a central tendency of 5.2 percent to 5.3 percent, up from the level of about 4-3/4 percent projected last July for the same period. The downgrade in our projections for economic activity in 2008 since our report last July reflects the effects of the financial turmoil on real activity and a housing contraction that has been more severe than previously expected. By 2010, our most recent projections show output growth picking up to rates close to or a little above its longer-term trend and the unemployment rate edging lower; the improvement reflects the effects of policy stimulus and an anticipated moderation of the contraction in housing and the strains in financial and credit markets. The incoming information since our January meeting continues to suggest sluggish economic activity in the near term.

Posted by on February 27th, 2008 at 10:08 am


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