The US Dollar is rebounding (against Europe)

[Deep Dish]

In some good economic news...

The US Dollar currently exchanges for about 79 cents, its highest strength against the Euro since April 2006. For a few brief moments this year, the Canadian Dollar exceeded the US Dollar, but the US Dollar has rebounded to about 1.28, its strongest since September 2004. The US Dollar stands 67 cents against the British Pound, the highest since about June 2002. 2007 was a marginally poor year for the US Dollar against the Swiss Franc, but 2008 has inched upwards to 1.22, regaining its highest value since about July 2007.

The US Dollar is having a bad year against the Hong Kong Dollar, but three, five, and ten year trends are highly erratic--I have no idea what's going on there. The US Dollar has also been not fairing well against the Japanese Yen, at its lowest point since about August 1995. The Chinese Yuan is interesting because its exchange rate almost never changes--flat lining for the past ten years except for a steady decline from June 2005 to July 2008. Curious news arrives from India, skyrocketing past the Indian Rupee and achieving its all-time high (insofar as my historical data can reach to May 1990).

As for Russia, split between Europe and Asia, the US Dollar currently exchanges for about 27.50 Russian Rubles, its strongest value since about April 2006.

Economics is not my strong suit, especially international trade, but I know currency exchange is one indicator of economic health. I didn't research every currency exchange but the trend is for the US Dollar to be accruing value in Europe while losing traction in Asia. I don't know what ramifications all this holds, but to the minimum it means traveling to Europe is recovering in affordability.

(Note: I used money.cnn.com for current and historical data.)

 

[speakeasy]

I don't think the value of the currency says much about economic health. Our dollar stated its slide as Greenspan kept wrecklessly lowering interest rates while other countries kept theirs high. Now other countries are lowering their rates and some of the gap is eroding. A strong dollar will hurt US manufacturing, but will be great if you planning a trip overseas. But I don't use the value of our currency as a barameter for how well the country is doing. You'd be better off looking at the unemployment rate and GDP.

 

[SmoothTalker]

I don't have an economics degree, but I have studied it at the post secondary level and for my own interest quite a bit.

Although it can sometimes reflect economic strength, exchange rates are really an extremely complicated variable which primarily depends on the supply and demand for various currencies on the world market.

This supply and demand is influenced by a lot of things, including interest rates, inflation, size of a countries money supply, and also plain old speculation.

In my opinion, the current rally in the US dollar is an anomaly which will not last for long, assuming our understanding of economics is even remotely correct.

Why? Because the US is doing everything a country should NOT do if it wants a strong currency - running trade and government deficits, printing money (bailout anybody?), lowering interest rates (there's talk of the FED going to 0%!), and all the other economic problems in general.

So why is it rallying? Simple really, at the moment US dollars are in around the world because as the world's largest economy, it is considered a safe haven in uncertain times. So all around the world, people are selling of their domestic investments and purchasing things in US dollars, such as US bonds, driving up price due to increased supply.

Ironic isn't it? The country that started this whole mess and is plunging the world into a possible depression is now considered the safe bet. However in my opinion they will being to realize this isn't a good idea as things in the US get worse, and will seek other stores of value, perhaps gold. Also, currently all the money the government has printed hasn't been reflected in the currency yet because it hasn't entered circulation - most of the banks are just sitting on it instead of lending, so the money supply has not actually grown, yet.

In short I predict a pretty major drop in the value of the USD within the next year as the 'safe haven' fallacy begins to disappear.

 

[Johnny Soporno]

In short I predict a pretty major drop in the value of the USD within the next year as the 'safe haven' fallacy begins to disappear.

Another notion which you might not have considered, Smoothtalker -
When the US markets took the initial beating, many major American-owned multinationals called upon their subsidiaries to consume all their borrowing-power in their home countries, and send the newly-raised money to the US parent.

In doing this, the demand for US currency went up madly, as hundreds of billions of newly generated debt needed to be converted to US funds, shooting the Dollar to its current position.

"We know things are bad... they're worse than bad! They're CRAZY!" - Howard Beales

Johnny Soporno
Short-selling US currency

 

[speakeasy]

Short-selling US currency

What currencies are you buying? And how are you buying them? I'm trying to learn about this stuff so I can make up for a decade worth of bad investing.


Also from what I've heard part of the reason the dollar is rising is the "first in, first out" prospect. The U.S. being the first into recession, some believe it will be the first out of recession. Other major economies will now have to start lowering interest rates as they are sliding into recession, so there's reason to believe the Euro and pound will fall against the dollar further. We don't have much room to further lower our interest rates. The collapse of the oil market has also pushed the dollar back up. Don't overlook that the dollar may have been artificially held low due to the bubble in oil and other commodities and their inverse correlation with the dollar.

 

[Gaucho]

lol, while I have an economics degree, I don't think it will help much here.

This is simply based on perception, fear and greed. So being a trader, it's pretty clear.

Global meltdown, 'flight to quality'. USD is a 'percieved' safe haven to store your funds in a time where all other investments (other than short-selling) are experiencing negative growth.

Gold is the other safe haven in a time like this, but as a period of deflation is now expected, rather than stagflation, gold sort of looses it's 'shine'.

Not much else too it.

 

[SmoothTalker]

I doubt the first in first out idea will pan out in this case. Yeah the US started having problems first, but I don't think that means they will also get out first.

After all, downturns come in all different lengths, and while plenty of countries in the world are only suffering due to a lack of confidence and decreased demand for their exports, the US has actual problems.

An economy fueled for probably around a decade by nothing more than skyrocketing debt and home equity cannot just take a breather for a few months and jump back into action. Well it can, it's sometimes possible to reinflate a bubble like the government did after the dot com/9-11 crash, but that only postpones the pain, as we are now finding out. Things will readjust now to organic growth levels where people only spend what they have, if not a bit less because they have years of debt to pay off. In a lot of ways this is similar to Japan's problems for the last few decades, and clearly they weren't FIFO.

PS: I wonder how all the real estate speculators on this board who swore that real estate will never go down are doing these days.

 

[speakeasy]

I think I'll be buying oil soon. Can't see it getting much lower than this. And when demand returns, it's going to come back with a screaming vengeance. Peak oil is real, but this global recession just bought us some extra time.

 

[SmoothTalker]

Oil will bounce since it is a bit oversold now, and its valued in USD so as that falls oil will go up, but, we will not be seeing this summer's prices for a very long time.

Even OPEC is now saying $70-80 is what they consider a reasonable price, so $100+ was just stupid. Until everybody in China starts driving a car, true demand won't be enough to make it that high, only possibly speculation too.

Sucks too, I bought shares in an oil company. Guess I'm going long term now.

 

[Gaucho]

I think I'll be buying oil soon. Can't see it getting much lower than this. And when demand returns, it's going to come back with a screaming vengeance. Peak oil is real, but this global recession just bought us some extra time.

Definately.

As soon as the oil uptrend resumes, I'm jumping on board with my ears pinned back! :wave: