Dollar-denominated assets of all kinds, including former safe-haven investments such as Treasury bills and the debts of Fannie Mae and Freddie Mac, belatedly recognized as unbacked by government guarantee, will come under relentless selling pressure.
As global markets slide, the dollar has become a hot commodity.
The dollar surged again Monday against a swath of currencies, with the exception of the Japanese yen, which drew strength as fear swept through markets.
The latest advance follows a record-breaking performance last week that saw the dollar post its biggest weekly gain against the euro since the European currency's inception in 1999. Late in New York, one euro bought $1.3519, its lowest level since August of last year, down from $1.3806 late Friday.
The buck's rise is unfolding despite grim data out of the U.S. It is being fueled, many experts believe, by a frantic search for dollars by foreign banks from Switzerland to South Korea.
That scramble is also producing highly unusual situations in short-term money markets, with foreign banks, particularly from Europe, seeking dollars early each day while U.S. players hoard them. Many European banks are paying interest rates that are at least twice as high as what their U.S. counterparts are paying to borrow dollars overnight.
The dollar is in demand because many foreign banks engaged in short-term borrowing in dollars to fund various activities in recent years. Now, one normal channel for getting those funds or rolling over such debt -- borrowing from U.S.-based banks -- is gummed up, as banks are leery of lending to one another.
At the same time, banks world-wide are also looking to reduce their overall borrowing as part of a race to clean up their balance sheets. Where that borrowing was in dollars, they need dollars in order to repay it.
"There is a pyramid of leverage" in the financial system built up over years, says Mark Astley, CEO of Millennium Global Investments, a U.K. currency manager with $15 billion in assets. "This isn't going to be over in a couple of weeks."
The global demand for dollars pushed the U.S.
