Monday, August 11, 2008

FT: Dollar at Crossroads Amid Brighter US Outlook --This week will be crucial in determining whether the dollar has broken free from its six-year downward trend, as speculation mounts that the U.S. is in the best position to emerge quickly from the economic downturn.

The dollar index, which measures its value against a basket of six major currencies, put in its best performance for over three-and-a-half years last week and boosted the dollar to its highest level for four months (see chart above).

Ulrich Leuchtmann at Commerzbank said in a note he expected the dollar to rise “like a phoenix.” He said low U.S. interest rates were not a burden on the dollar but an attraction, proof that the Federal Reserve was able to react quicker to turmoil than other central banks.

He said that in a very short period, “sentiment turned by 180 degrees – the market now believes that the US economy once again will be able to leave a crisis behind very quickly.”


At 8/11/2008 3:06 PM, Blogger the buggy professor said...

A good post, Mark.

If the dollar continues to rise, say, another 10-15% in the coming year, that might help ease the Fed Reserve policymakers' worries about inflation . . . while, simultaneously, not hurting American exports much in such a short interval.

That's because the pass-through period of a rising dollar before export and import sales are influenced --- especially export sales --- is reckoned to be somewhere between 8 to 16 months. It all depends, first and foremost, on how quickly or slowly contracts between US exporters and foreign importers will be re-written.

The same applies to US importers and foreign exporters. And the buying and substitution decisions of businesses and consumers here and abroad as time goes on . . . plus, of course, the vigor of economic growth in this country and abroad.


Anyway, it seems good news. If, additionally, oil prices continue to fall, and if (as some of your posts indicate) the fall in housing prices is nearing the bottom in most of the US, then banks and other financial institutions might start lending more freely again, and we may escape a recession and see an improved GDP growth rate in the coming quarters.

At bottom, the best news remains: the US economy has become impressively flexible and resilient thanks to all the changes since the end of the Carter era: de-regulation, growing globalization and international competition, the fairly fast move upward on the learning curve by firms and workers of the computer, the Internet, and ICT technologies.

Not to forget the remarkable adaptability and general acceptance of change on the part of the American work-force, despite all the dislocations in our economy over the last 3 decades . . . a period of flux and uncertainty and the disruptive forces of Schumpeterian creative-destruction as the very base of production and the labor market have been transformed to accommodate all the changes.


Michael Gordon, AKA, the buggy professor

At 8/11/2008 3:28 PM, Blogger OBloodyHell said...


(dun dun... dun dun)


(dun dun... dun dun)

looming on the horizon...

(dun dun... dun dun)

lurking in the shadows...

(dun dun... dun dun)

churning the slow, still waters off the shore....

(dun dun... dun dun)

Lays the possible Obama presidency...

(dun dun... dun dun)

And sheer terror abides!!!

(music rises sharply in volume...)


... and another economy bites the dust...



At 8/11/2008 3:47 PM, Blogger bobble said...

" . . . and another economy bites the dust..."

the dust has already been bitten.

for this, we can thank Greenspan and Bush.

At 8/11/2008 4:07 PM, Blogger bobble said...

" They say other central banks, unlike the Federal Reserve, have been slow to respond to a potential slowdown, refusing to cut interest rates as they focus on fighting inflation. "

yes, another way to look at this is that currency traders think the rest of the world will soon be lowering interest rates, due to the spreading worldwide recession. this will cause the euro/yen to fall and the dollar to rise, regardless of what happens in the US. US interest rates can't go much lower :o]


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