Jul
11
2008
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Jul
11
2008
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Could it be that the dollar may be nearing the end of its protracted decline?
The dollar has been trading in a narrow range against the Euro since the European Central Bank (ECB) raised its interest rate last Thursday. This could be a possible sign that the worst is over for our currency.
It’s said that the dollar is pretty much at rock bottom and has to begin to turn upward now.
For the past seven years, the dollar has lost 40% against an index of U.S. trading partners’ currencies. That has given US exports a boost and made them less expensive for foreign buyers. It’s also made imported products more costly though, and given American tourists in Europe major shocks.
The ECB is almost done with its tightening campaign and the Fed has just completed its easing. That could be very favorable for the dollar.
A broad European slowdown would likely keep the ECB from raising rates. And with the key U.S. lending rate at a low 2%, the Federal Reserve’s next move will be an increase.
Higher interest rates would attract investment flows from other countries and push the dollar up.
The dollar has regained some strength back from lows against the British pound and Japanese yen.
The dollar also has strengthened against some Asian currencies, notably the South Korean won and Vietnamese dong.
The South Korean central bank spent about $5 billion this week intervening in foreign exchange markets to stem the won’s decline. The dollar has gained about 16% against the South Korean currency since the end of October.
