Dollar demise refuted with 13% gain since 2008

NEW YORK: Moves by the Federal Reserve to flood the world with dollars are doing little to dent the currency's value, bolstering the appeal of US assets at a time when the government needs the support of foreign investors the most.

The US Dollar Index has appreciated 13% 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 IMF said on December 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 US 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 US 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's Cologne, Germany-based Sal. Oppenheim private-wealth manager, which oversees 3 billion ($3.9 billion). "The dollar will be strong in 2012," he said.

CURRENCY CORRELATION
IntercontinentalExchange's Dollar Index, which tracks the currency against the euro, yen, pound, Swiss franc, Canada dollar and Swedish krona, rose 1.46% last year. That followed a gain of 1.5% in 2010, marking the first time it advanced two years in a row since 2000-2001.

The gauge is up from 70.698 in March 2008 and compares with 1991's low of 80.34. The dollar gained 1.11% last year, the most after the yen's 5.5% climb among 10 developed-nation peers as measured by Bloomberg Correlation-Weighted Indexes.