Yen Tops Dollar; Euro Above $1.33

Brad DeLong notes the latest report on the dollar's slide against the euro and now the yen. The part about Asian investors, i.e., China, seems especially worrisome: "Asian nations may no longer be willing to fund the large deficits in the U.S. unless interest rates rise." Remember Brad DeLong's trilemma that we face: 1. raise taxes, 2. cut federal spending, or 3. Argentina-style meltdown. We seem to be approaching #3.

WSJ.com - Euro Rises Above $1.33 As Dollar's Slide Continues: The U.S. dollar's slide against the euro kept up its momentum Friday, with the European currency rising above $1.33 for the first time.

It was the fourth day in a row on which the dollar hit a new low against the euro, which rose to $1.3329 in early trading Friday before slipping back under $1.33. On Thursday, the euro topped $1.32 for the first time. At mid-afternoon in Europe Friday, the European currency was trading at $1.3255, up from $1.3250 late Thursday in New York.

The dollar also was weaker against the yen, slipping to ¥102.52 in Tokyo Friday from ¥102.54 late Thursday. The dollar currently is trading around its lowest levels since December 1999 against the Japanese currency.

Contributing to the pressure on the dollar Friday was a Chinese newspaper report on China's holdings of dollar-denominated assets, which encouraged traders to focus on expectations that Asian nations may no longer be willing to fund the large deficits in the U.S. unless interest rates rise.

The dollar's current slide, driven primarily by concerns over the U.S. trade and budget deficits, has taken the euro up from around $1.20 about two months ago, prompting European leaders to begin worrying openly that it might damage their export-driven economic recovery.