The dollar plunged last week to the ¥95 level for the first time in 12 years and six months. The U.S. currency at one point moved to record lows against the euro. Its weakness results from a fear among market players that the U.S. economy is heading toward a recession. The subprime mortgage crisis in the United States has caused a credit crunch and started affecting the real economy. On March 11, the U.S. Federal Reserve, the European Central Bank and the central banks in Britain, Canada and Switzerland announced an injection of dollars into financial markets to ease the credit crunch. (The Fed alone would inject up to $200 billion in Treasury securities.) The effect of this joint action, however, was short-lived.
Money is leaving the U.S. and heading toward speculative buying in gold and commodities markets. Gold futures in New York topped $1,000 a troy ounce for the first time. West Texas Intermediate crude oil hit $111 a barrel.
The market trends point to the need for the U.S. to take drastic measures to fundamentally solve the subprime loan problem. Injection of public money to beef up the equity capital of financial firms could be an option although there is a fear that it would cause moral hazards.