Dollar Slides Near 2½-Year Lows

NEW YORK—Traders pushed the dollar to near 2½-year lows, emboldened by growing expectations that the Federal Reserve will give no indication of when it might end its ultra-loose monetary policies.

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“…upon the earth distressStrongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexityStrongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed
—Luke 21:25

Divided Nation

“But he, knowing their thoughts, said unto them, Every kingdomStrongs 932: basileia, bas-il-i´-ah; from 935; properly, royalty, i.e. (abstractly) rule, or (concretely) a realm (literally or figuratively): — kingdom, + reign. dividedStrongs 1266: diamerizo, dee-am-er-id´-zo; from 1223 and 3307; to partition thoroughly (literally in distribution, figuratively in dissension): — cloven, divide, part. against itself is brought to desolationStrongs 2049: eremoo, er-ay-mo´-o; from 2048; to lay waste (literally or figuratively): — (bring to, make) desolate(-ion), come to nought.; and a house divided against a house falleth.”

Analysts are increasingly convinced that the Fed will not sound any alarm-bells about rising prices in its monetary policy decision Wednesday afternoon—either by the Federal Open Market Committee’s statement, or via Fed Chairman Ben Bernanke’s first-ever post-policy meeting news conference. A premature end to the Fed’s controversial $600 billion bond-buying program is viewed as an even more remote possibility.

“I don’t think [the Fed is] ready, but they are preparing the groundwork” for an eventual tightening, said Joseph Trevisani, chief market analyst at FX Solutions. By comparison, Mr. Trevisani expects the European Central Bank to raise euro-zone interest rates at least twice more this year.

“That’s a big differential in interest-rate size,” he said, even as Europe’s unresolved debt crisis was keeping the euro from trading above $1.50.

Over the last several months, investors unsettled by the U.S.’s inflationary mix of cheap credit and soaring debt have sold the dollar—all but replacing the “bond vigilantes” who used to sell Treasurys in order to drive up yields and prompt policy makers to deal with the federal deficit.

With pessimism mounting about the U.S. interest-rate and fiscal policy outlook, the dollar fell to a new record low against the Swiss franc, and probed its weakest levels in more than 14 months against Europe’s single currency and the British pound. On a trade-weighted basis, the dollar closed in on its deepest trough since August 2008.

Late Tuesday, the euro was at $1.4640 from $1.4583 late Monday. The dollar was at ¥81.53 from ¥81.69, while the euro traded at ¥119.36 from ¥119.12. The U.K. pound bought $1.6476 from $1.65. The dollar was at 0.8759 Swiss franc from 0.8808 franc.

The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 73.777 from 73.986.

The Australian dollar, helped by rising interest-rate expectations and surging oil, rose to a new 29-year high at $1.0792 from $1.0781 late Monday.

Meanwhile, market participants are beginning to mull what will happen when the Fed ends its highly contentious quantitative easing, or QE2, program in June.

The end of QE2 might provide an opportunity for a pullback in a market that has shunned the dollar in dramatic fashion, some analysts say.

“Over the next 3-6 months, we expect more two-way risk for the dollar versus G10 currencies, as QE2 comes to an end and as the rally in global risk assets enters a very mature phase, with implications for global capital flows,” noted Jens Nordvig, global head of G10 FX strategy at Nomura Securities International Inc. in New York.

But with global inflation on the rise and the Fed seen on hold, the currency market’s “vigilantes” are likely to retain the upper hand. Safe-haven assets such as the Swiss franc and gold are surging, which indicate that a sizable segment of the investment community is not convinced price pressures and other global risks are fully contained.

Dollar bears will likely be watching the tense negotiations over the U.S. budget deficit and the debt ceiling. As a result, analysts expect any respite from dollar selling to be short-lived at best.

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