Interest Rate Roundup

Tuesday, May 12, 2009

Dollar can't get out of its own way

Here we go again -- the Dollar Index can't get out of its own way. It's down about 75 bps to 82.08 at last check. Euro is now flirting with the 1.37 level (meaning one euro buys $1.37) and even the lowly British pound is coming off the mat.

This is continuing evidence the Fed and Treasury are throwing the dollar under a bus in an effort to try to "reinflate" the economy. Is that the right strategy? Bernanke certainly thinks so. He's trying to reinflate so the real burden of our crushing debts goes down. But it also has negative side effects. For instance, you can forget about those nice cheap gas prices you've been enjoying -- and soon (based on what's happening in the agricultural commodities market), cheap food prices, too.

I also believe the very low mortgage rates we've been enjoying are going to disappear soon. The Fed is trying to buy anything and everything out there (Treasuries, mortgage bonds). Yet bond prices are falling and rates are rising. That tells you nobody -- not even the Fed -- can fight the market forever.


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