The malaise in the U.S., where stimulus is still the word of the day, stands in contrast to active recoveries in Europe and Asia, where governments are actively removing stimulus. As a result, we are now headed for the eighth consecutive weekly decline in the Dollar Index.
Inspired by comments this week from St. Louis Fed President James Bullard, it is now widely accepted that the continued domestic weakness will cause the Fed to significantly expand stimulus efforts through so-called “quantitative easing.” The printing of trillions of dollars to purchase of government debt will put serious pressure on the value of the dollar.
With the monetary cards now so clearly on the table, currency traders have placed their bets, and the smart money is quickly running away from the Greenback. The falling dollar is reigniting the commodities market. On Monday oil busted through the $80 price ceiling that had held since May. Any additional breaks to the upside may be considered one of the unforeseen “negative shocks” of which Fed President Bullard warns. If the government fears the “recovery” will be further impinged by higher energy prices then look for “quantitative easing” to become both the driving force of our economic policy and poison that finally kills the dollar.