This article in the Wall Street Journal talks about the falling value of the dollar to other currencies and how that is going to impact the US and the world economy.
The greenback has been tumbling for a while as the Federal Reserve lowered the interest rates. Since the other countries are expected to raise their interest rates before the Federal Reserve, the dollar is expected to loose more of its value. However, as the dollar continues its downward slide, policy makers in other countries will start complaining that a weak dollar hurts their ability to export goods to the US which might help revive the dollar.
In the quarter, the dollar lost 4.1% of its value against the euro and dropped 6.8% against the Japanese Yen. One of the main reasons why the dollar has been loosing its value over the past few months has been the fact that the Federal reserve seems in no hurry to raise interest rates and thus invite people to invest in the dollar. For this reason, several Asian banks have been buying the dollar to keep their exports competitive.
Although the dollar has been tumbling for a while now, it is expected to regain its value soon as pressure from other countries' rises and as the economic situation in the country improves which would allow the Fed to raise interest rates.
3 comments:
Once again we have another article that shows the actual reality of the state of our economy. Just when some economists believed that the recession had finally ended, we now see that the vaule of the dollar has worsened in the third quarter, making investors move their cash into riskier investments in search of higher returns. As a result of the dollar weakening, some countries, especially Asia and Europe, might start to complain that a weak US dollar will hurt their ability to export goods to the US, which hopefully could help the dollar if it drops too low.
The beautiful thing about markets is that it is self correcting. Right now, the US is importing way more than it is exporting, resulting in a huge trade deficit. With the weakening US dollar, the US will import less since imported goods will be more expensive in US dollar terms. However, US exports will be relatively cheap abroad, resulting in higher exports. Of course, if the US dollar collapsed, that is not a good thing. But gradual correction to some sort of equilibrium is good.
I agree- a weaker dollar (in moderation) is not unhealthy. Many countries work hard in order to devalue their currency so that their exports are more attractive- this is something that could benefit the U.S. in the long run.
Post a Comment