Quick -- everybody back into the dollar!
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The We-Still-Love-the-Dollar club picked up another member over the weekend, when Russia’s finance minister said it was ‘too early to speak of an alternative’ to the greenback as the world’s premier currency.
Today, the dollar is surging against the euro, the Canadian dollar, the Brazilian real and most other currencies. The buck’s rally also has knocked the wind out of commodities, including oil.
The euro has tumbled to $1.377 from $1.401 on Friday. Its recent peak was $1.43 on June 2.
What’s good for the dollar isn’t necessarily good for U.S. stocks, however: Wall Street is broadly lower, led by commodity-related issues and big industrial exporters. The Dow Jones industrial average was down 199.82 points, or 2.3%, to 8,599.44 at about 11 a.m. PDT. It’s on track for its biggest one-day slide since April 20.
Besides Russia’s supportive words, investors suddenly aren’t so sure about an economic turnaround, and that’s reviving the dollar’s status as a haven.
The buck slumped 12% from March 5 to June 2, measured against a basket of other major currencies, as fears over the global economy retreated and as China and other U.S. creditors expressed concern about the Obama administration’s massive borrowing to fund the economic and financial-system bailouts.
A Treasury report today showed that foreign demand for dollar-denominated securities fell in April, though it’s likely that many investors weren’t so much fleeing U.S. assets as hunting for opportunities elsewhere: As optimism rose this spring about the global economy many investors were shifting money to riskier assets, including emerging-market stocks and commodities.
In any case, the dollar’s weakness this spring emboldened its critics. Early this month, Russian President Dmitry Medvedev repeated an idea he had raised in March about eventually moving away from the dollar as a reserve currency. Any nation with huge holdings of dollar-denominated securities fears what a meltdown of the greenback would mean for its own financial well-being.
Over the weekend, however, Russian Finance Minister Alexei Kudrin expressed unqualified support for the dollar, speaking after the meeting of Group of 8 industrial nations’ finance chiefs.
The dollar is in ‘good shape,’ Kudrin said, according to Bloomberg News. ‘It’s too early to speak of an alternative.’ Indeed, with no other currency capable of taking the dollar’s place, the world can’t quickly abandon the greenback even if Medvedev and others wanted to do so.
Japanese Finance Minister Kaoru Yosano helped lift the buck late last week after saying that his country’s confidence in U.S. Treasury securities was ‘unshakeable.’
Treasury yields are easing for a third straight session today, benefiting from the sell-off in stocks and fresh doubts about the economy’s health. The 10-year T-note yield is down to 3.72% from 3.78% on Friday and last week’s eight-month high of 3.99% reached on Wednesday.
-- Tom Petruno