The dollar deteriorated about one-quarter cent to $1.5220 against the euro and fell about 0.31 yen to 103.15 yen in Monday morning trading. The dollar also fell about one-third cent to $1.9870 against the British pound, and about one-half cent to $1.0356 against the Swiss franc.
The dollar's fall continued despite growing concern in Europe that the euro is rising too much -- to levels that would hurt European exports. A rising euro increases the price of European exports to the U.S., if exporters pass along the added cost. On Tuesday European Central Bank President Jean-Claude Trichet told reporters a strong dollar is in the interests of the United States.
However, to-date, the ECB has resisted undertaking efforts to help stem the euro's rise, keeping its benchmark short-term interest rate at 4%. The ECB is expect to keep the rate the same when it meets Thursday to discuss monetary policy.
Fundamentals weigh on dollar
A series of macroeconomic and monetary factors has synthesized to create a bearish condition for the dollar. The U.S. economy is near, or already in, a recession, reducing demand for dollar-denominated assets. The U.S. Federal Reserve is likely to lower benchmark interest rates further in an attempt to reverse the economy's contraction path. In addition, high oil prices are driving up the already above-trend U.S. trade deficit, flooding the world with more dollars. Finally, the U.S. continues to import more than it exports, increasing U.S.'s demand for foreign currencies, further reducing the dollar's value.
Psychological factors are also weighing on the dollar. On Monday, Harvard University Economist Martin Feldstein said that given existing international and U.S. economic conditions, the dollar must fall to assist the U.S. recovery, The Boston Globe reported.
Economic Analysis: At this juncture, it appears the leaders of the world's major central banks -- Fed, ECB, Bank of Japan -- seem comfortable with a further decline in the dollar. Unlike previous dollar decline periods, the Bank of Japan shows little interest in propping up the dollar, and the ECB, despite signs of moderating growth in Europe, is not sending monetary easing signals. This suggests a further 5-10% decline for the dollar in 2008, which will boost U.S. exports sales. The downside: if Americans don't reduce their consumption of foreign goods (including oil) it will mean increased inflation at home, among other consequences.
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Reader Comments (Page 1 of 1)
3-04-2008 @ 12:10PM
oliver said...
Economic Analysis: At this juncture, it appears the leaders of the world's major central banks -- Fed, ECB, Bank of Japan -- seem comfortable with a further decline in the dollar. Unlike previous dollar decline periods, the Bank of Japan shows little interest in propping up the dollar, and the ECB, despite signs of moderating growth in Europe, is not sending monetary easing signals. This suggests a further 5-10% decline for the dollar in 2008, which will boost U.S. exports sales.
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US export sales? Yes, we're exporting grain and in the process we're driving our food prices here at home right through the roof, i.e.; a 50lb bag last year was ~ $13.00. This year it costs $30.00. We've lost our industrial/manufacturing base to the chinese and the japanese. We don't have oil. We closed most, if not all, automobile plants. We have started to import "know how" from india and the far east. What's left other than food products to export? The USA is rapidely becoming a 3rd world country. 30 years ago when I came to the USA, if somebody had told me this would happen, I wouldn't believed it.
3-04-2008 @ 1:13PM
Roger said...
And it is getting worse and worse.... I am involved in the agricultural business. Some large agricultural company reps are now out in the field telling people they will drive the smaller independent producers and companies out of business. Yes, they are indeed bragging about it and it is beyond a threat! Of course, if they do, you can anticipate that food prices will continue like oil prices with too few companies controlling the food supply. With the U.S. exporting all the raw materials we are also destroying our complete manufacturing base and the jobs that go with it. Livestock producers are now being dropped by their banks as grains are too expensive to be fed. The ethanol industry is a complete sham by the U.S. government and is helping to create worldwide shortages of edible products. The U.S. dollar (or American "peso") is heading downward making all U.S. raw goods a bargain basement deal causing runs on ocean shipping containers to get the products out of here. In my city this is the first time in history where there are no ocean containers available as they are too busy transporting U.S. raw materials out. Local businesses can not compete with the buying power of the euro, yen, or other foreign currencies and will be forced to close. The powerful overseas currencies are allowing these large cash-rich companies to stockpile U.S. goods for future production of finished materials which they will sell to the highest bidder. The U.S. response is the continued devaluation of the dollar and propelling us into a serious recession with no foreseeable way out. All of this is just a testimony to the failed financial policies of the Bush administration. Apparently none of them have ever had to get out among their constituents and see what is really happening. Very, very sad and the seriousness of this tragedy is still coming! Most Americans are "asleep at the wheel" or too uninformed to realize what is happening.
5-24-2008 @ 10:50AM
CRAIG ANDERSON said...
CAN SOMEONE SAY GLOBAL ECONOMY?
:) move everything out of the country &
there will be a cause & effect.Take away
healthcare like ronald did in the 80's &
there will be a cause & effect.Greed has
taken us all down a very dark road.A dead
end one might say.Instruction book on life
says you reap what you sew.Duh