(Bloomberg News) Moves by the Federal Reserve to flood the world with dollars are doing little to dent the currency's value, bolstering the appeal of U.S. assets at a time when the government needs the support of foreign investors the most.
The U.S. Dollar Index has appreciated 13 percent from a record low in March 2008 even as the Fed kept interest rates at about zero and printed cash to buy $2.3 trillion of Treasury and mortgage-related bonds, and is little changed since 1991. The International Monetary Fund said Dec. 30 that the greenback's share of global foreign-exchange reserves rose in the third quarter by the most since 2008.
That long-term stability shows America's currency is a store of value and may help explain why the U.S. is attracting record demand for the unprecedented amount of bonds the Treasury Department is selling to finance a budget deficit exceeding $1 trillion. Even though Standard & Poor's stripped the U.S. of its AAA rating in August, investors see the nation as a refuge from slower global economic growth and Europe's sovereign-debt crisis.
"The safe-haven function of the dollar is still alive," said Achim Walde, head of global fixed income and currencies at Deutsche Bank AG's Cologne, Germany-based Sal. Oppenheim private-wealth manager, which oversees 3 billion euros ($3.9 billion). "The dollar will be strong in 2012," he said in a telephone interview on Dec. 29.
Currency Correlation
IntercontinentalExchange Inc.'s Dollar Index, which tracks the currency against the euro, yen, pound, Swiss franc, Canada dollar and Swedish krona, rose 1.46 percent last year. That followed a gain of 1.5 percent in 2010, marking the first time it advanced two years in a row since 2000-2001.
The Dollar Index weakened 0.5 percent to 79.916 at 9:43 a.m. London time. The gauge is up from 70.698 in March 2008 and compares with 1991's low of 80.34. The dollar appreciated 1.11 percent last year, the most after the yen's 5.5 percent climb among 10 developed-nation peers as measured by Bloomberg Correlation-Weighted Indexes. The indexes show that since 1975, only the yen and Swiss franc have done better than the dollar.
The performance counters officials in China, Germany and Brazil who said that the Fed's policies were weakening the dollar. House Speaker John Boehner of Ohio and three other Republicans sent Fed Chairman Ben S. Bernanke a letter in 2010 expressing "deep concerns" about the central bank's plan to print money to buy bonds, saying it risked weakening the dollar and fueling asset bubbles.
Europe Crisis
That was before Europe debt crisis spread, sparking demand for the safest of assets.