Thursday, September 20, 2007

Ben, What Have You Wrought?

From Bloomberg:

The dollar fell to the lowest versus the euro since the European currency's inception in 1999 on speculation the Federal Reserve will continue to reduce interest rates, dimming the allure of U.S. assets.

``It seems like the world is dumping the dollar,'' said John Taylor, chairman of FX Concepts Inc., a New York firm that manages $12.1 billion in currencies. ``The U.S. central bank is cutting its interest rate. We have sold the dollar and will continue to do so. My preference is to sell the dollar against European currencies.''

From Bloomberg:

Gold rose to a 27-year high as the dollar fell to a record low against the euro and the spread between the two- and 10-year U.S. Treasuries widened, fueling demand for the metal as an inflation hedge. Silver also climbed.

Gold's gain today was the biggest in seven months, sending bullion up almost 17 percent for the year and heading for its seventh straight annual gain. The yield spread on Treasuries widened to the most since May 2005 on speculation a plunge in the U.S. currency and the Federal Reserve's first interest-rate cut in four years will spark inflation.

``When the bond markets and currency markets move, it is a shout rather than a whisper to the gold market,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``The Fed has thrown in the towel in its fight against inflation.''

From Bloomberg:

The difference between two- and 10- year Treasury note yields increased to the widest since May 2005 on speculation the tumbling dollar and the Federal Reserve's cut in borrowing costs will fuel inflation.

Yields on 10-year notes, more sensitive to inflation expectations than shorter-term securities, rose faster than those on two-year notes, steepening the so-called yield curve. A Fed report showed manufacturing in the Philadelphia region accelerated more than economists forecast this month.