From: Ellen K. 

And consequently gold is up.

On Tue, 28 Nov 2006 21:17:00 -0500, "John Beamish"
 wrote in message
:

>http://www.theglobeandmail.com/servlet/story/LAC.20061128.RDOLLAR28/TPStory/Bu
siness
>
>Struggling U.S. dollar triggers currency concerns
>Long-term threat of 'trade chaos' cited
>
>BARRIE MCKENNA
>
>WASHINGTON -- Renewed fears that the Chinese central bank may be poised to
>start liquidating its $1-trillion stash of U.S. dollars briefly drove the
>greenback to a 20-month low against the euro and a two-year low against
>the British pound in trading yesterday.
>
>The euro surged to $1.3172 (U.S.) against the greenback and the pound to
>$1.9469, before losing ground by day's end. The loonie and the yen have
>also gained on the U.S. dollar in recent days.
>
>The sudden weakness of the U.S. dollar began late last week, soon after
>Chinese officials suggested that holding a lot of dollars might be a
>losing investment strategy. Investors read that as a signal that the
>massive trade and financial imbalances between Asia and the U.S. may be
>about to unwind.
>
>The chief worry is that if China's central bank -- the largest foreign
>holder of U.S. dollars -- begins to unload its reserves, the dollar will
>plunge. With China's yuan effectively pegged to the dollar, other leading
>currencies would move higher after the realignment.
>
>There's no evidence yet that's what China is actually doing. But few
>investors want to be the ones left holding dollars when the plunge comes.
>"People are getting very nervous," said Andrew Busch, chief foreign
>exchange strategist at BMO Nesbitt Burns in Chicago.
>
>"It's a wonderful behavioural science experiment and it's being played out
>with billions of dollars. The first to get out tips the scales."
>
>Central banks in Russia and in some Middle Eastern countries have already
>announced plans to cut their U.S. dollar holdings.
>
>China's currency rose to a new high against the greenback yesterday as the
>Chinese central bank set its official exchange rate at 7.8402 yuan to the
>U.S. dollar. That's the highest level since July of last year when China
>relaxed its tight currency controls. Since then, however, the yuan is up
>just 3.3 per cent versus the dollar.
>
>By contrast, the greenback is down 10 per cent against the euro and
>roughly 2 per cent against the yen and the Canadian dollar so far this
>year. The loonie closed at 88.32 U.S. cents, up from 88.05 Friday, while
>the U.S. dollar rose to 116.13 Japanese yen from 115.55 yen.
>
>Also pushing the movement in currencies is the slowing U.S. economy, which
>could force the U.S. Federal Reserve Board to cut interest rates in the
>coming months. Meanwhile, the European Central Bank is looking at a
>possible interest rate increase next month.
>
>The net effect is to make euros more attractive. It has also begun to
>encourage Europeans to buy more imported goods, and even take trips to the
>United States.
>
>The British pound is rising alongside the euro, spurring a resurgence of
>holiday shopping junkets to New York by British tourists, according to Dee
>Byrne, spokeswoman for the Association of British Travel Agents.
>
>"There has been an upturn in bookings to the States, for Christmas
>shopping in particular," Ms. Byrne told Reuters News Agency.
"People are
>going to New York to do their Christmas shopping, where they will get much
>more for their money: It couldn't have come at a better time."
>
>But other experts see a much more ominous impact of these potentially
>seismic currency shifts.
>
>The surging euro could cause permanent damage to the European economy, and
>even spur calls for exchange rate controls.
>
>Peter Morici, a former chief economist at the U.S. International Trade
>Commission, said China is to blame for unleashing a potentially
>destabilizing period of currency realignment by stubbornly refusing to let
>its currency float to absorb its soaring trade surplus with the rest of
>the world.
>
>"The long-term consequences of this could be trade chaos," warned Mr.
>Morici, now a business professor at the University of Maryland.
>
>Talk of exchange rate controls in Europe is an ominous reminder of the
>1930s, when protectionism and currency controls helped trigger a global
>recession.
>
>"It's like water. There are too many dollars out there, looking for a
>place to go," Mr. Morici said. "China is pushing on a wall of
competitive
>devaluation."
>
>Investors are betting the most likely place for all those dollars to go is
>the euro -- often touted as a reserve currency for the world. "The
>Europeans wanted a reserve currency and now they're about to find out what
>it's like," Mr. Morici said.

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