How low will the Dollar go?

The US, which has engaged in a more limited form of quantitative easing than the UK, has seen the value of the US Dollar shrink as the global markets have rallied. Historically, the Dollar has been seen as a safe-haven for money when times are tough and thus as investors want to take more risk, the Dollar can fall in value. So with the rally, the Dollar has fallen in value.

Gold too has been rising, as it often does in Dollar weakness, although the correlation is breaking down somewhat. This though can be a sign that the markets see a lot of risk in the current system.

Also the British Pound Sterling has recovered some of its weight in the world in recent months, today it is at $1.65 to the Pound. Way of the 2-1 ratio of pre-credit crunch, but a long way up from its lows of $1.35 of earlier this year.

As currency movements go in cycles though, this may prove to be a low for the US Dollar, which could well rally until nearly Christmas. This means a worse exchange rate for the Pound if you are looking to travel or invest abroad.

Worse of course is that the Bank of England is intent on printing more money to cover our government's profligate spending, which means the Pound will sink even lower. My guess is that it will re-test the lows of earlier this year and fall below parity with the Euro next year at some point.

Get those travellers cheques in early....

Will Brown sink the £ and FTSE?

Even as I write there is speculation of an emergency Cabinet meeting being held this afternoon ahead of the meeting of the Parliamentary Labour Party this evening.

Also the FTSE has been down well over 1% today, dragged down by State owned banks and mining companies on the whole. The £ too has shed over 5% in a week against the dollar on the back of UK Government instability (Now there is a short opportunity I should have seen!).

I think the meetings today are over-hyped and that the media storm will blow itself out and Brown will remain in office but not in power. However,I hope I am wrong and stranger things have happened in politics.

All the whole, the markets have been in a very low volume funk for the last week or so. The power of the bull run from March is clearly at an end as the Summer encroaches upon us. Now is a dangerous time for the rally to be exposed as a Bear Market rally and a new dive in the FTSE and £ could be very dangerous.

At this time, having an unstable Government is about the worst political thing we could have, even more dangerous than Ed Balls as Chancellor. Labour need to sort it out one way or the other. More dithering will chop 5% off the FTSE this week. My short will go on later today at this rate....