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US Dollar Rally Not Over Yet

Currencies / US Dollar Sep 15, 2008 - 12:29 PM GMT

By: Mike_Shedlock

Currencies Best Financial Markets Analysis ArticleThose looking for a collapse in the US dollar in the wake of the Lehman bankruptcy did not get it. The US dollar index was down huge last night but has now rallied to even.



US$ Index - 30 Minute Chart

Chart courtesy of Barchart . Click link to refresh.

Euro Rally Stalls


Chart courtesy of Barchart . Click link to refresh.

China Cuts Rates, Lowers Reserve Requirements

In US dollar friendly news, China Cuts Rates as U.S. Turmoil Adds to Global Risks .

China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth.

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today.

"Policy makers see the probability of a recession in the U.S. is higher now, so the outlook for Chinese exports has deteriorated," said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. "This is the beginning of an easing cycle in China." He was the only one of seven economists in a Bloomberg survey last week to predict a rate cut this year or in the first quarter of 2009.

For the dollar to hold its own in the wake of the Lehman bankruptcy and the Fed's emergency liquidity actions (see Fed's PDCF, TSLF Pawnshop Limits Increased; Section 23A Rules Violated ) is rather impressive. Those looking for continued strength in the dollar are likely to get it if the Fed does not cut rates at Tuesday's FOMC meeting.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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Comments

michele tover
24 Sep 08, 06:04
US dollar Rally

Your article lets me believe that the rally of the dollar is due to the foreign investors in keeping its value since they depend on the currency´s stability to continue trade with the US.


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