US Dollar - Not a lot for currency traders to go on today with economic data barely considered by a lot of market participants. Instead, dollar markets continued to show considerable weakness heading into the weekend as traders in other parts of the world woke up to find Chinas latest development. For those who missed out, yesterday afternoon the central bank head of China Zhou Xiaochuan stated that the countrys reserve plan continues to include further diversification away from US dollar based assets and into other assets carrying a higher rate of safety, efficiency and liquidity. The announcement becomes a notable concern for the worlds largest economy as the Chinese country holds $1 trillion in foreign exchange reserves, with a whopping 72 percent being sectioned for US dollar denominations. As a result, the sheer weight of positioning holds negative for the dollar as the statement coincides with recently similar announcements by the Russian central bank this year and the South Korean central bank last year. Coincidentally, the bearish notion is likely to be exacerbated come year end as the global arena comes to grips with confirmation that the Federal Reserve is likely to entertain notions of a short term rate cut early next year. As it seems, the only saving grace will now fall on how well Congress and the Executive administration co-exist along with continually stable economic fundamentals. With the Democratic party in full control of Congress, further protectionist measures may be forthcoming which is likely to conflict with the current administrations plans. Most importantly, it will likely exacerbate the current tensions between China and US trade relations, making Treasury Secreatary Henry Paulsons job a tad more difficult. All in all, dollar bullishness may well be placed on hold for the rest of the year, setting the scene up for a potentially rocky holiday season.
Al Bawaba
US Dollar - Not a lot for currency traders to go on today with economic data barely considered by a lot of market participants. Instead, dollar markets continued to show considerable weakness heading into the weekend as traders in other parts of the world woke up to find Chinas latest development. For those who missed out, yesterday afternoon the central bank head of China Zhou Xiaochuan stated that the countrys reserve plan continues to include further diversification away from US dollar based assets and into other assets carrying a higher rate of safety, efficiency and liquidity. The announcement becomes a notable concern for the worlds largest economy as the Chinese country holds $1 trillion in foreign exchange reserves, with a whopping 72 percent being sectioned for US dollar denominations. As a result, the sheer weight of positioning holds negative for the dollar as the statement coincides with recently similar announcements by the Russian central bank this year and the South Korean central bank last year. Coincidentally, the bearish notion is likely to be exacerbated come year end as the global arena comes to grips with confirmation that the Federal Reserve is likely to entertain notions of a short term rate cut early next year. As it seems, the only saving grace will now fall on how well Congress and the Executive administration co-exist along with continually stable economic fundamentals. With the Democratic party in full control of Congress, further protectionist measures may be forthcoming which is likely to conflict with the current administrations plans. Most importantly, it will likely exacerbate the current tensions between China and US trade relations, making Treasury Secreatary Henry Paulsons job a tad more difficult. All in all, dollar bullishness may well be placed on hold for the rest of the year, setting the scene up for a potentially rocky holiday season.
