The massive injection of liquidity into the financial system by the Treasury Department and Federal Reserve will drag the dollar down, says Moneynews.com currency columnist Sean Hyman.
The liquidity surge has helped push yields on Treasury securities to 50-year lows, making those securities less appealing to global investors. The 10-year Treasury note now yields 2.66 percent.
“The dollar will be debased by the flood of dollars coming in from the Treasury and Fed,” Hyman says.
“That means other currencies like the euro will rise.”
The euro soared to a record of $1.60 in April, but has since fallen back to $1.2738 as investors have flocked to Treasuries and the dollar as safe havens during the financial crisis.
The euro won’t be the only beneficiary of the dollar’s weakness, says Hyman, who writes the Currency Investor column for Moneynews.
“Commodity currencies will start to climb once we see stocks stabilize, which I think will happen in the first quarter of next year.” Among those currencies are Australian, New Zealand and Canadian dollar.
But the yen, which has gained about 18 percent against the dollar since January, won’t continue its rise, Hyman predicts.
“Once you get stocks stabilizing, then you will see the defensive play that the yen has been fall quite precipitously.”
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