Thursday, July 14, 2011

Sumitomo Trust & Banking Co. Expects US Dollar to Weaken

Analysts at Sumitomo Trust & Banking Co. expect the greenback to weaken. In their view, US currency will be affected by the continuous debates about raising US government’s debt limit and reducing budget deficits ahead of the August 2 deadline.

The specialists claim that during the past few years the major central banks, especially Asian, tended to diversify their currency reserves decreasing the share of dollar assets. According to the bank, US dollar is gradually losing its status of the world’s main reserve currency. The debt-related factors add now to this pressure. One more reason for USD to weaken is the possibility of additional monetary stimulus in the United Stated confirmed yesterday by the Fed’s Chairman Ben Bernanke.

As a result, Sumitomo economists advise traders to avoid American currency. The analysts claim that it may be necessary to cut their forecast for USD/JPY by the beginning of 2012 from 88 to 85 yen.  

The IMF data shows that the greenback’s share of global currency reserves declined in the first quarter to the minimal level since 1999 of 60.7%. Moody’s Investors Service put US top debt rating on the negative watch for the first time since 1995.

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