Some more information on the U.S. dollar, and China's diversification

I found some more information through Marketwatch on the falling U.S. dollar, and on China's diversification of its dollar holdings. From Marketwatch:

SAN FRANCISCO (MarketWatch) -- The dollar was off new lows hit Wednesday after a Chinese official called for his country to shift more of its foreign-exchange reserves out of the greenback, but remained sharply down, under pressure from pricey oil, slumping stocks and expectations that U.S. interest rates are headed lower than those in Europe.

"The single most important factor that differentiates the current dollar bear market is the contrasting growth and interest rate landscape between the U.S. and global economies, as most foreign central banks are closer to raising interest rates while the [U.S. Federal Reserve] is forced to cut rates further," wrote Ashraf Laidi, chief currency analyst for CMC Markets.

The single most important factor that differentiates the current dollar bear market is the contrasting growth and interest rate landscape between the U.S. and global economies, as most foreign central banks are closer to raising interest rates while the [U.S. Federal Reserve] is forced to cut rates further. I've read this quote four times already, and something just doesn't make sense about it. It is like the foreign central banks are raising interest rates in order to slow the global economy down, while the Feds are cutting rates to keep the U.S. economy from stalling. And through all this economic uncertainty, the only certainty there is will be the dollar's continued slide in value.

Continuing into this Marketwatch story:

Comments during Wednesday's Asia session from a Chinese policymaker provided a convenient shove to send the dollar hurtling downward, though analysts were quick to point out that his views probably don't reflect official Chinese policy.

Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying that China should shift more of its $1.43 trillion of currency reserves into "stronger currencies," such as the euro, to offset "weak" currencies like the dollar.

"The comments were quickly retracted, but fed a beast that wanted to push [the dollar] lower, and merely wanted a reason," wrote David Watt, senior currency strategist at RBC Dominion Securities.

Cheng also said that a rapid appreciation of the yuan -- as Washington and increasingly Europe are requesting -- is not necessarily the right move, though he insisted the country wasn't actively seeking a major trade surplus.

Cheng "has in the past made errant remarks that have no bearing on policy," according to Marc Chandler, currency strategist at Brown Brothers Harriman.
Nonetheless, the reports sent the dollar into a tailspin.

The buck plunged to new lows against the euro, with the shared currency surging as high as $1.4731 - its highest level since it began trading in January 1999.

Perhaps Siwei is worried that China is holding too many dollars, and would like to diversify the dollar holdings into other currencies. But the official Chinese government policy disapproves of Siwei's "diversification," or at least the public revelation of such a diversification by Siwei. I'm thinking that China may be just as addictive to their economic expansion fueled by Chinese exports to the U.S., as the U.S. economy is addictive to the Chinese imports. It is like both country's economies are so intertwined, that a crash on one economy could result in a crash on the other.