Adjusted For Inflation, Dollar Hits Fiat-Era Low

05-01-2011 • CNBC.com

The Broad Trade-Weighted Dollar Index, which was created by the Federal Reserve, differs from the more popular “Dollar Index” because it includes a larger group of currencies and is weighted based on foreign trade. The stellar economics team at Deutsche Bank, led by Joe Lavorgna, then adjusts this measure for inflation to get what they believe to be the true measure of the dollar’s value in the world. “In our risk scenario, little progress on the fiscal front raises the probability of a fiscal crisis and the odds that the Fed becomes the buyer of the last resort,” said David Woo, currency strategist for Bank of America Merrill Lynch, in a note to clients today. “This would accelerate the process of the USD’s demise as the global reserve currency and cause it to decline in a disorderly manner.” The dollar hit new 2011 lows versus the Euro and the British Pound Thursday as traders increasingly viewed Federal Reserve Chairman Ben Bernanke’s monetary policy press conference a day before as dovish on inflation.