This is a very contentious issue that requires a great deal of interpretation. I personally err on the side of caution and do not advise to declare a currency loss citing a Coordination with section 988(c)(1)(C)(ii). No exchange gain or loss is recognized with respect to currency losses regarding CD's or other demand/time deposits.
Any one reading this post has my blessing if they take an opposite position. If examined by the IRS, make sure you can support your position by all of thousands of references written on the subject. Ensure yourself it's an authoritative source such as the IRS or US Tax court. The Tax Advisor and Cornell School of law are other excellent sources of information
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