The falling dollar
The U.S. dollar tumbled to its lowest level in nearly a year this week. Several important trends explain and stem from the greenback's weakness.
First, the dollar decline represents a continued reversal of the flight to safety that occurred during the peak of the financial/economic crisis—September 2008 to March 2009. The perception is increasing, slowly yet steadily, that the global economy is improving. This encourages investors to sell dollars and invest in riskier assets in other currencies.
Second, positive economic news from Asia and, to a lesser extent, Europe, suggests that much of the rest of the world is on a faster recovery pace than the U.S. If so, many other nations will raise interest rates before the U.S. in order to prevent their economies from overheating. Stronger economies and higher interest rates tend to strengthen currencies.
Third, the U.S. government's massive stimulus program creates a flood of dollars, boosting the supply of greenbacks. It also raises the risk of higher inflation in the future.
Fourth, concerns have increased about the dollar's status as the world's reserve currency. While the greenback's preeminence is not immediately in doubt, it's likely that the rest of the world increasingly will seek other alternatives, perhaps eventually leading to a more internationally based currency system. For example, China is on track to become the first investor in a new series of notes issued by the International Monetary Fund.
Fifth, the dollar's value is declining not only against foreign currencies, but also against gold, oil and other commodities, which investors increasingly view as a store of value and hedge against a depreciating greenback. Gold crossed $1,000 per ounce this week for the first time since February.
The dollar is now trading where it was before the collapse of Lehman Brothers almost a year ago, accelerating global financial markets' downward spiral and fueling the rush into the U.S. currency as a safe haven.
In 2009, the dollar has declined 4 percent against the euro, but much more against the currencies of commodity-rich Brazil (20 percent), Australia (17 percent) and Canada (11 percent).
All of this is why I continue to maintain significant exposure to foreign equities, including the emerging markets, to benefit from both faster growth abroad and the long-term decline of the U.S. dollar.
First, the dollar decline represents a continued reversal of the flight to safety that occurred during the peak of the financial/economic crisis—September 2008 to March 2009. The perception is increasing, slowly yet steadily, that the global economy is improving. This encourages investors to sell dollars and invest in riskier assets in other currencies.
Second, positive economic news from Asia and, to a lesser extent, Europe, suggests that much of the rest of the world is on a faster recovery pace than the U.S. If so, many other nations will raise interest rates before the U.S. in order to prevent their economies from overheating. Stronger economies and higher interest rates tend to strengthen currencies.
Third, the U.S. government's massive stimulus program creates a flood of dollars, boosting the supply of greenbacks. It also raises the risk of higher inflation in the future.
Fourth, concerns have increased about the dollar's status as the world's reserve currency. While the greenback's preeminence is not immediately in doubt, it's likely that the rest of the world increasingly will seek other alternatives, perhaps eventually leading to a more internationally based currency system. For example, China is on track to become the first investor in a new series of notes issued by the International Monetary Fund.
Fifth, the dollar's value is declining not only against foreign currencies, but also against gold, oil and other commodities, which investors increasingly view as a store of value and hedge against a depreciating greenback. Gold crossed $1,000 per ounce this week for the first time since February.
The dollar is now trading where it was before the collapse of Lehman Brothers almost a year ago, accelerating global financial markets' downward spiral and fueling the rush into the U.S. currency as a safe haven.
In 2009, the dollar has declined 4 percent against the euro, but much more against the currencies of commodity-rich Brazil (20 percent), Australia (17 percent) and Canada (11 percent).
All of this is why I continue to maintain significant exposure to foreign equities, including the emerging markets, to benefit from both faster growth abroad and the long-term decline of the U.S. dollar.
________________________________
1and1 1&1 1and1 1and11and1 1and1 1and1 1and1ipowerweb review powweb reviewlunarpages review anhosting coupon 1and1
