But as investors know, and as currency traders will quickly point out, these are not normal times.
Safety is paramount
The dollar continues to hold its own, for the most part, versus the world's other major currencies, despite the fact that the United States is likely to bear the largest economic and fiscal costs stemming from the financial crisis and consequent recession. The dollar has held on to gains recorded earlier in the month against the euro and the British pound, at about $1.2670 and $1.4720, respectively, losing ground only against Japan's yen, at 96.60 yen.
Currency Trader Andrew Resnick said the dominant theme in the currency markets -- as in almost every market these days, it seems -- is risk aversion and a flight-to-safety.
"The dollar is clearly benefiting from the flight-to-safety. On an economic fundamentals basis, the dollar should not be this strong and U.S. interest rates should not be this low, but fundamentals are not ruling the day now," Resnick said. "Safety and the protection of capital is." Resnick added that he was presently flat, or had no open currency positions.
Moreover, if a decade ago someone would have suggested that the United States faced the prospect of a $1 trillion annual budget deficit and then said the dollar would be holding its own, Resnick said, "people would have not taken you seriously, but that's where we are today."
Further, in addition to safe-haven status, the dollar continues to benefit from the fact that both the United Kingdom and the European Union appear to be later-in-the-economic-cycle, Resnick said, which means they'll have to cut interest rates more to stimulate growth, reducing the attractiveness of the pound and euro.
Forex / Economic Analysis: At some point, as the United States' economic recovery begins, the nation will have to increase taxes to cut its budget deficit, or else long-term interest rates will rise, and the dollar will fall. But that day is not today, and as Resnick points out, it is not near, enabling the U.S. to finance its bank rescue and related economic recovery programs at low interest rates.
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Reader Comments (Page 1 of 1)
11-14-2008 @ 12:17PM
Iridium said...
That is because the world economic summit will most likely start talks about creating a world reserve bank and a world currency based on the value of the dollar.
Pretty soon they will confiscate hard assets just like during the creation of the US federal reserve to back up the new world bank reserve.
The large traders are backing out of hard assets. They know something and that is why gold isn't shooting to record levels.
11-14-2008 @ 1:58PM
BHarrison said...
One of the few "salvations" for the USA will be the restoration of the U.S. dollar being the "currency exchange standard" for the world. If we were to lose that economic postion, it would be even more disastrous.
At this point, the American people had better hold onto everything that we have. The statement: "The large traders are backing out of hard assets. They know something" . . . says a lot. It is not time to start investing in the market. The only other "salvation" will be in restoring "integrity" to our politics and to our businesses . . . whithout that we will truly be doomed for a long time.
It appears that in the absence of integrity in government and business, corruptions becomes pervasive . . . such as in Russia, and many other countries. We are on the verge of losing the democracy and freedoms that our forefathers worked so hard to establish.
I don't push "religion" or "political parties", only the ethical values that will save and perpetuate our society. Our last two generations of children have little appreciation for most of it all.