Smart money players Warren Buffett and George Soros are making huge bets the dollar will continue its slide to new lows all next year.
The greenback hit its lowest level ever against the euro yesterday, dropped to a five-year low against the British pound and fell to a 10-year bottom against the Canadian dollar.
Despite positive economic news last week, traders say foreign investors are skittish about making U.S. investments due to its record trade and budget deficits, which undermine the dollar.
Our historically low interest rates, now at 1 percent for the key federal funds rate, are also spooking foreign investors.
Buffet made no secret about his dollar bets, saying in a letter published on Fortune.com last month that his Berkshire group has made “significant” foreign currency purchases in the last year because he thinks the U.S. trade deficit will erode the dollar.
Traders in London said Soros and numerous other speculators have been building substantial “short” positions against the dollar, according to the Independent.
Bets by traders that the euro will gain against the dollar rose to the highest level in 18 months, according to Commodity Futures Trading Commission data.
The dollar’s slide rattled world markets early yesterday when it fell to $1.2018 against the euro, the lowest since the euro’s debut five years ago. It strengthened later to $1.1989.
European economists think the dollar will slide to $1.24 during 2004.
Another factor dragging down the dollar was the Bush administration move to impose trade restrictions on imports of Chinese textiles, which could trigger new trade conflicts.