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Abrupt drop in the dollar

October 21, 2010

The abrupt decline in the dollar, by about 10 percent since early June against major currencies, is upsetting the delicate balance of world economies still recovering from the shocks of the financial crisis.

Many other currencies, especially in Asia and in emerging markets like Brazil, are soaring as a result of the dollar’s fall. Those nations’ domestic economies are attracting floods of speculative capital seeking higher interest rates and are at risk of overheating.

The dollar’s decline is being driven by what everyone in global markets is now expecting: another round of so-called quantitative easing by the United States. In the next few weeks, the Federal Reserve is expected to inject vast sums of money into the economy in another attempt to spur growth.

While such policies may benefit the convalescent United States economy, they are also drawing criticism that Washington is deliberately devaluing the dollar at others’ expense.


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