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The dollar's perfect storm worsens Jim Jubak On Nov. 13, I wrote that the U.S. dollar was being pummeled by a perfect storm. Just three weeks later, the storm is even stronger. The force of the winds punishing the dollar is building, and there's a real danger that the currency will tumble out of control. What has changed so much in just three weeks? Inflation in Europe has picked up and is now above the range the European Central Bank has said it will tolerate. There's a good chance the bank will raise short-term interest rates to 4.25% from 4% when it meets Thursday. With U.S. interest rates on hold or headed lower, the result would be another big boost to the euro, another hit to the dollar, a continued move away from the U.S. dollar by central banks in Asia, Russia and the Middle East, and higher prices for gold and, more importantly, oil.
That's a lot of fallout from just one quarter-point increase, but the global economy and financial markets are so precariously balanced that any increase in wind velocity can cause massive damage. So just how good a chance is the "good chance" that the European Central Bank will raise interest rates Thursday? Here's the situation the bank faces. You be the judge.
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