The dollar has now sunk for seven straight weeks against the euro, its longest stretch of consecutive declines since the start of the year. The 1.33 levelhas already been tested and found wanting, and although the dollar is now around two cents better off that early Friday absolute low, the 1.35 level now looks to be just a matter of time.
The euros’ steady rise has been affected by many things ; the size of America’s current account and trade deficit are important long-term factors, but the damage this week has come from two new quarters, and they are indicators of a deeper current running against the world’s favourite reserve currency. First of all near panic was triggered by a rumour China was dumping US government bonds from its reserve holdings. The Chinese calmed nerves when they said their mix of bonds and cash was simply being changed without reducing overall dollar holdings . However the Russians began overturning the applecart when they said this week they would be adding to their euro reserves at the expense of the dollar. The fact two central banks have intervened in this way illustrates that the private sector is all but done with devaluing the greenback, and that its fate is now in government’s hands. Only intervention can now stop the dollar’s slide in many analyst’s opinion, otherwise the market will continue to be bearish, and the euro will continue its crazy spin up into uncharted territory.