Analyst say beware the dollar dive

Year 2010 To Hit Dollar Hard

The feast of cheap and limitless liquidity could not avoid interfering with the international currency market. While in the first six months of the year the crisis was beneficial for the US dollar, in the second half of the year speculators took it out on the dollar over and above. This year is expected to continue weakening of the American currency that dropped to the level of $1.6 for one Euro in 2009.

After the plunge of the Euro in the beginning of 2009 (over 9% in the first two months), the trend changed in March. As a result, within the year the Euro grew by over 10% and reached the remarkable level of $1.5 for one Euro.

This tendency concerns Euro region officials worried about the economic growth of the region. European companies are also concerned with the current state of affairs in the foreign currency market since they think that the level of $1.5 for Euro is the pain threshold for the export-oriented European corporate sector.

According to analysts of Kalita-Finance, for these companies, expensive domestic currency is an export tax of sorts that compromises competitiveness of European goods outside of Europe.

Since March 2009, the dynamics of the currency market was predetermined by the US Federal Reserve System. Regulators made a decision to take non-traditional measures in support of the financial system. Experts say that the measures were boiled down to pumping the bank system with freshly printed dollars.

At its March meeting, Federal Reserve made a decision to start buying out treasury bonds for $300 billion (private monetization of debt). To this sum, they added $1.25 trillion under the program of bonds acquisition and $175 billion for acquisition of agency bonds (bonds issued by a US government-sponsored agency).

Despite the Federal Reserve efforts to pump the financial system with liquid assets, the banks are not willing to credit the real sector. Financial institutions prefer to accumulate the funds generously provided by the Federal Resetves. As a result, the volume of excessive reserves of American banks reached record high levels and exceeded the mark of one trillion dollars.

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