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Seems like the dollar is on a dangerous skid. The greenback fell almost 2% against a basket of major currencies in the week after the Federal Reserve cut America's short-term interest rates on September 18th, hitting a new low for the post-1973 floating era. The fall was particularly pronounced against the euro, where the dollar fell to a record $1.41 per euro on September 25th.
Inflation is also rising fast in Saudi Arabia the link to a falling dollar is causing a growing headache. The inflationary risks from a weaker dollar are also easily overdone. Most economists reckon that the pass-through from a weaker dollar to higher import prices has weakened in recent years, and is particularly low in America.
Today's pessimism is centred on America—hence the tumbling dollar. But there may soon be reasons to worry about Europe. Germany's Ifo index of business confidence fell again this week for the fourth consecutive month, to a 19-month low. The aftershocks of the credit crisis coupled with a surging euro could make life difficult for Europe's firms.
Inflation is also rising fast in Saudi Arabia the link to a falling dollar is causing a growing headache. The inflationary risks from a weaker dollar are also easily overdone. Most economists reckon that the pass-through from a weaker dollar to higher import prices has weakened in recent years, and is particularly low in America.
Today's pessimism is centred on America—hence the tumbling dollar. But there may soon be reasons to worry about Europe. Germany's Ifo index of business confidence fell again this week for the fourth consecutive month, to a 19-month low. The aftershocks of the credit crisis coupled with a surging euro could make life difficult for Europe's firms.