THE stock market has ridden hopes for a soft landing to new highs in recent weeks. But the plunging US dollar may dash that optimism.
The dollar skidded to new lows against the Japanese yen and fell sharply against the deutschemark and other important currencies during the past week, despite concerted efforts by international central banks to prop it up.
That move prompted concern that the Federal Reserve will be forced to raise interest rates once again to support the flagging currency.
Some stock analysts believe the resulting higher rates could choke off economic growth and derail corporate earnings, two things that are ultimately the force behind the run-ups in stocks.
'Along with a rebound in the economy, the weakness in the dollar has the greatest potential for causing the Fed's soft landing to go awry,' said James Solloway, research director at Argus Research Corp.
The Fed is attempting a 'soft landing', a slowing in the economy that is sufficient to head off inflation but not enough to bring on recession.