Dollar Falls to Record Low Versus Euro as ECB Remains Mum on Stance

Section:

8:48p ET Tuesday, November 23, 2004

Dear Friend of GATA and Gold:

The Financial Times story appended here about
the Russian central bank's talk of diversifying
its foreign exchange reserves out of the U.S.
dollar should hearten gold bugs against the
frequent musings that the investment world
couldn't be shorter on the dollar now and so a
dollar rally is inevitable.

The dollar indeed may rally, but almost certainly
not for any market-based reason. Rather, despite
all the talk that the dollar is oversold, in fact
its biggest holders remain the central banks, and
they have BARELY BEGUN to sell.

Indeed, that the dollar and U.S. bonds have held
up since Fed Chairman Alan Greenspan tried to
talk them down in Frankfurt last Friday is almost
certainly a matter of market intervention by
dollar-holding central banks to prop up the
dollar and U.S. bonds lest their dollar reserves
get wiped out before an orderly devaluation of the
dollar and perhaps the euro and an increase in
the value of the Asian currencies can be arranged.

The world too short on the dollar? Hell, no, for
there are so many of them out there that there's no
easy way of exchanging them for other financial
instruments without the risk of blowing up the
world financial system.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Dollar Down As Moscow Trails Case for Euro

By Steve Johnson and Chris Giles
Financial Times, London
Tuesday, November 23, 2004

http://news.ft.com/cms/s/18d9ab96-3d9a-11d9-abe0-00000e2511c8.html

The dollar hit an eight-year low against European
currencies on Tuesday as a senior Russian official
said Moscow might increase the proportion of its
foreign exchange reserves held in euros.

The markets took statements by Alexei Ulyukayev,
first deputy chairman of the Russian central bank,
as another signal to put pressure on the U.S.
currency. The Russian move was seen by some
currency traders as a possible precursor to reserve
adjustments by central banks across Asia.

The euro rose to intra-day high of $1.3105 against
the greenback, from an earlier low of $1.2978, as
Mr. Ulyukayev told reporters that the decline of the
dollar on global markets was "a real problem."

He added: "It is unlikely that the dollar share of
reserves will be reviewed. The share of euros may
be reviewed, but first we need to undertake analysis."

Hans Redeker, head of currency strategy at BNP
Paribas, said: "The Russians are saying they don't
see the potential for a rebound of the dollar."

Meanwhile, Michael Hughes, chief investment officer
at Baring Asset Management, predicted that the
pound would rise to $2.30 within two years. Mr.
Hughes, a well-respected forecaster, told a
conference in London that sterling would be
squeezed up by the eurozone's sluggish economic
performance and the U.S. deficit.

Russia, which had a record $113.1bn (61bn) of
foreign reserves as of November 12, had some 63.8
percent of its reserves in dollars at the end of 2003,
with 19.7 percent in euros, according to the
International Monetary Fund. But analysts think
Moscow has since increased its euro holdings to
about 25-30 percent. They say that Russia may
seek to reduce its dollar holdings to as little as one
third of its reserves. Tony Norfield, global head of
FX strategy at ABN Amro, saw Russia's move as
heralding the end of the dollar's pre-eminence as
the world's reserve currency.

"Although the flows from this move may be quite
small, it is significant because it is chipping away
at dollar support," he said. "Previously the idea of a
currency challenging the dollar was seen as pretty
farfetched. The previously privileged position of the
dollar is likely to be challenged further."

The U.S. bond markets do not yet show any signs
of a general lack of confidence in U.S. assets, with
10-year U.S. Treasury bond yields remaining at
historically low levels of around 4.2 percent, down
from a peak this year of just under 4.87 percent in
June.

The dollar fell against a range of currencies yesterday,
hitting a fresh eight-year low of SFr1.1566 against the
Swiss franc, a nine-month low of $0.7877 against the
Australian dollar, a four-month low of $1.8726 against
sterling, and a seven-month low of Rbs28.49 against
the rouble.

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