Don’t Like Weak Dollar, Get Used To It!

CNBC is reporting the weakness in the US dollar, which is causing everything to go up—including gas prices, food and stocks—is unlikely to go away soon as a selling frenzy hits the currency market.

The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world’s predominant national currencies.

A combination of factors accounts for the weakness, with the Federal Reserve’s easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.

In short, as trader Dennis Gartman noted Thursday, “the rout of the US dollar” is in full effect.

“Panic dollar selling is setting in,” Gartman, a hedge fund manager and author of “The Gartman Letter,” wrote in his daily commentary. “This may carry farther than any of us dream of or, worse, have nightmares of.”

How low can it go?

But the stock market has enjoyed the weak dollar.

The Standard & Poor’s 500 [.SPX 1337.38 — and the dollar have had almost a perfectly inverse relationship this year, with the stock index gaining just over 6 percent in 2011 and the dollar losing 6.5 percent.

The only thing on the horizon that appears to be dollar-friendly is the end of the second leg of the Fed’s quantitative easing program—or QE2—in June.

Even then, the central bank is likely only to stop its $600 Treasury-buying operations. There are no indications that the Fed will be selling back into the marketplace any of the securities it has purchased, so a rise in rates is unlikely until inflation becomes more widespread and indicated through government economic metrics.

“That’s probably just a warm-up for a QE 3 program later on. All these things are undermining the fundamentals for the dollar,” said Sean Hyman, currency director for World Currency Watch. “It doesn’t help anything that commodities keep going through the roof. There are a few dynamics working in a concerted effort all at once, and that’s killing it.”

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