The first trading day of 2007 saw the USD continue in the downward spiral that began in late 2006. Most economists agree that the US monetary cycle has already peaked, and disagree only when the Fed will lower rates. Meanwhile, speculation is increasing that the ECB will raise interest rates for a seventh time at its meeting later this month. As it stands now, the spread between comparable US and EU interest-bearing securities is under 100 basis points. An EU interest rate hike coupled with a decline in US rates could completely eliminate the slight advantage that the US currently enjoys in attracting foreign cash, which would certainly cause the USD to plummet. Bloomberg News reports:

The U.S. central bank will reduce its overnight lending rate between banks by the end of the year to 4.75 percent, according to sixteen of the 22 so-called primary dealers who trade directly with the Fed.

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