Why do we have a weak dollar?

Posted Nov 10th 2009 5:45PM by Connie Madon
Filed under: Major Movement, International Markets, Products and Services, Management, Competitive Strategy, India, China, Market Matters, Money and Finance Today, Japan, Commodities, Oil, DJIA

The stock market is rallying. Commodities are on a tear. Yet the dollar is falling. Why?

There are several reasons for the drop in the dollar, but the most obvious and simple answer is that investors around the world are selling dollars and using the money to buy stocks and commodities, particularly oil and gold.

Last week India announced that it had bought 200 tons of gold from the International Monetary Fund (IMF.) At an average of say $1000.00 per ounce, the transaction amounted to about $7 trillion dollars. Chances are that India sold dollars from their sovereign fund to buy the gold.

Large US multinational exporting companies favor a weak dollar because it lowers the price of our products and that makes them more attractive to foreign buyers.

The US debt is now in the trillions. Investors seeing this huge amount are putting their money into other assets such as stocks and commodities, especially in developing countries. This shift is moving dollars into economies such as India and China.

Developing countries like China and India survived the financial crisis much better that the US. They have excess reserves. Unfortunately, these countries are shifting from the US dollar to other currencies such as the euro and yen.

So, then, we have a confluence of factors coming to bear on our weak dollar and none of these are about to turn around soon.

Do you believe that the dollar will continue to weaken?

Tags: commodities, currencies, featured, stocks, US dollar, UsDollar

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Reader Comments (Page 1 of 1)

11-10-2009 @ 7:13PM

ij70 said...

I believe it will continue to weaken.

11-12-2009 @ 9:31PM

l.wolfkopf said...

well... it started some time ago and it is to involving to et into it on the fly. ,, It is not a matter of that the US. Dollar has been getting weaker... other Currencies have been getting stronger . Besides, a currency mirrors the economy of a country .... much has been written on this subject lately and will be for a while ... so. keep reading up on things and stay informed is most likely one way to come close to finding the answer to the weak dollar ...

11-10-2009 @ 10:06PM

zilbo79 said...

Actually that's $6.7 BILLION based on 200 metric tons according to Bloomberg... :)

http://www.bloomberg.com/apps/news?pid=20601091&sid=aa6oc6Wz9Ftg

2-02-2010 @ 9:33PM

l.wolfkopf said...

as a second thought, if the Dollar gets to weak we will have a chance of a good size problem... With every point the dollar looses on the currency market , China gets a hick - up because it looses millions of Dollars daily . Dollar China bought at one price last month, last week even yesterday and todays price is down some percentages .. with other words, last weeks Dollar today is less worth -- got it ..

11-11-2009 @ 9:46AM

brewstert said...

For those who favor a weak currency to gain exports, remember, this is equivelent to favoring a smaller paycheck each week, I'm sure you don't want that. Oh, and by the way many big names,ie. Rogers and Faber are now saying a countertrend rally is due soon in the dollar.