Dollar Falls on Chinese Words, Weak Figures

Following the weak consumer confidence release, the dollar fell almost against all currencies. The reason for the fall isn’t only the indicator – words about a nearing dollar crisis also contribute to the fall. EUR/USD and AUD/USD are at fresh highs.

CB Consumer Confidence dropped to 48.5 instead of 52.5 that was predicted. This significant disappointment was accompanied by another bad figure:

The Richmond Manufacturing Index dropped from 11 to -2, lower than +6 that was expected. A negative score means economic contraction. A bad sign indeed.

Dollar Crisis?

These figures triggered a dollar sell-off, that was already built by words from Yu Yongding, a former adviser to the Chinese central bank:

“Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.”

While not holding a position now, he probably wouldn’t speak out this way without consent from officials in Beijing.

And there’s another ongoing theme: the imminent second wave of quantitative easing is looming over the dollar – more dollar printing, no matter what size will be  announced, is going to hurt the dollar – devalue it.

EUR/USD at new highs

Euro/Dollar broke above 1.35 and also above 1.3530 and is now trading at 1.3542. The next lines are 1.37 and 1.3850. Below, 1.3430 and 1.3380 were left behind. EUR/USD is still within the uptrend channel that began in the middle of the month.

AUD/USD is another big winner, ticking up to 0.9650, a new two year high. One currency that’s missing out of the party is the Pound – it does enjoy this fall of the dollar, but it began in a weaker position, after also Britain can face a similar QE plan as the US.

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