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Mega Trend: Long Term Future of the US Dollar
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Posted by: Pat 4/18/2007 10:18 AM
Article by John Keister from Forexinterbank

Most every one trading currencies is well aware of the fact that the US dollar has been on the decline for well over two years now and, according to one international banking insider, it doesn’t appear that that mega trend is going to reverse itself any time soon.

The last week of March Nasser al Shaali, chief executive of Dubai International Financial Center (DIFC), expressed his belief that more and more Gulf economies will be moving away from a dollar currency peg, shifting foreign exchange reserves to other currencies, including the Chinese Yuan and the Euro. In support of that contention he noted in a recent Reuter’s interview that the UAE’s central bank has already started buying Euros as part of a long term strategy to convert at least 10 percent of its reserves into the single European currency before the end of the year.

Traders might well want to keep this in mind. While Saudi Arabia, Qatar, Oman and Bahrain have apparently ruled out changes to their dollar pegs, the UAE central bank’s actions could be a harbinger of a continuation of the dollar’s decline. Personally, I’m beginning to think that politics trumps even the most favorable economic reports over the long haul so I’m rather inclined to think that until the US government gets its international political affairs in order, there isn’t going to be much reason for the world to put a lot of faith in the US economy either.

Only one man’s opinion, of course. Update: Since John submitted this for the newsletter, Brazil’s central bank disclosed that it intends to do pretty much the same thing. “The idea is gradually [and] at a slow pace, to raise part of our reserves in assets not linked to the USD,” said Rodrigo Azevdo in a recent interview appearing in the business daily Valor Economico. According to the WSJ, 85% of Brazil’s 109 billion in foreign reserves are currently in U.S. dollar based assets.
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