Dollar's Recent Fall Led by BBC IndyMac Reporting

The fall of the dollar below $1.60 is highly disturbing, but can be tied to the BBC's airing of depositors fighting on lines outside of Indymac branches.

On Monday, the dollar fell to a new record low versus the Euro.  For most of the day $1.60 wouldn't even have bought you a single Euro. 

On Tuesday, oil had its largest one day fall ever, falling more than $10 per barrel.  Yet, while the dollar's decline has been tied to oil's rise, the dollar didn't even move a penny off of its lows of the reversal. 

What gives?

To understand the most recent extension of the collapse and the failure of any sort of a rebound, you just have to turn on BBC.  The last two days they have been showing nothing but Indymac depositors on lines outside of Indymac branches in California clammoring to get their deposits back and interviews with some morons who placed their life savings (over FDIC insured $100,000 limits) in the bank.  Oddly, I didn't see any of this stuff on CNBC or any US station.

A currency cannot strength while the world has a perception that the banking system is not only failing bu thtat deposits are hiding their moneies under the mattress.  London-based speculators know this game well, and used this opportunity to drown out all of the traders who have been betting against a dollar bounce or dollar recovery over the summer.

I still wouldn't be surprised if the dollar moved strongly the other way over the next two months as further signs of deterioration of the European economy start to roll in.

On a side note, I have written on this site of my concern over Bernanke, but I have also said that I believe that his most recent Congressional testimony shows that he is a realist.  That having been said, he did say one thing that caused me to wonder what he is smoking.  He said that the dollar has fallen only 25% versus the other major currencies.  He then tried to explain that it had fallen only 25% below the long term historical exchange rates.  What he really meant, I believe is that it had fallen only 25% below the dollar's previous historical low versus these currencies which was set in the late 1970's andd very early 1980's.

 

 

 

 

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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Comments

  • Sam Cass

    July 16, 2008

    I'm not sure the BBC airing some clips of depositors trying to get their money out of Indymac would have a substantial impact on the dollar. Probably more damaging is the fact that the probability of raising rates has pretty much disappeared for the next six months. Indymac, Freddie, and Fannie were some of the causes of that.

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