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Thread: What's the dollar doing?

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    What's the dollar doing?

    Anybody know anything about the money markets?

    I've been watching the dollar over the last five years, ever since it was down around US$1.64 to the GBP. Since then it's been getting worse and worse, peaking around the US$2.06 mark just before Christmas.

    Now it seems to be improving somewhat, having just reached US$1.96, but I can't figure out why. I don't watch any of the other currencies sufficiently to comment whether it's a fall in the value of the GBP or a spike in the value of the USD as investors realise how cheap it is.

    Anyone got any insight?
    sig removed by Zak33

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    Re: What's the dollar doing?

    Well maybe it’s just an internal market factor... Elections coming in Bush leaving the seat quite possibly the economic thrust levels are increasing.

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    Re: What's the dollar doing?

    Well, I'd say dollar pricing is an incredibly complex issue, and is affected by a good variety of major but interlinked structural factors. You've got poor growth in the US economy, inflation, real fears of a recession and even stagflation. You've got the global credit crunch and most especially you've got the sub-prime farce in the US. You've got the Chinese Yuan tied to the dollar and absolutely vast mountains of dollar reserves in China, and a China with a vibrant and growing economy, but you've also got a Chinese economy that is so vibrant in large part (though by no means entirely) because of exports to the US, and with the US economy and inflation figures looking the way they are and the credit crunch, you've pretty much got to assume a slowdown in the willingness of US consumers to continue buying imports on credit. And, you've got a Chinese economy which is growing substantially, but which also has significant levels of state controls, such as over banking, which seems to be indicating that they have very substantial loan problems of their own, and because the Yuan is tied to the dollar, the fluctuations with the dollar price are causing fluctuations with other currencies, and the dollar fall is clobbering the real value of that mountain of dollar reserves the Chinese have. Are the Chinese going to be happy watching the value of that dollar mountain shrinking, or are they going to start switching out of dollar reserves? And if they do, what will the effect of those dollars coming onto the currency markets do to the value of the dollar? As supply goes up, price (exchange rate) pretty much has to go down, particularly when you're talking trillion dollar quantities.

    Then you've got oil prices, and trading, measured in dollars, which adds another complicating factor to predicting dollar futures, and to explaining recent trends.

    And then, of course, the UK has some problems of it's own, especially in relation to levels of consumer debt and house price levels, uncertainty over the direction and magnitude, and timing, of interest rate changes in the UK, with talk of serious fears for this year of recession and stagflation, and if that happens, confidence in the UK is going to go down the toilet. So, you've not only got to be watching what the dollar does in relation to the pound, but what it does on relation to other currencies (like the Euro) too. If the dollar starts falling back a bit (as it has) against the sterling but that doesn't happen against the yen, Euro, etc, it strongly hints that the reason for that easing is in the UK. But, if all other currencies are mirroring each other (including the pound) you need to look either at global factors (perhaps energy) or US issues (such as the sub-prime issue, credit crunch, domestic inflation, domestic GDP projections, the utterances of the Fed, and so forth).

    Of all which is a fancy way of saying "anyone's guess".

    If I could predict what was going to happen with the dollar (and if I could accurately explain precisely why it's done what it's done at the detailed level, over the last few weeks, I probably could predict it), then I'd be sitting on the sundeck on my hundred million dollar yacht, in a sunny location, not sitting here at home typing this.

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    Re: What's the dollar doing?

    the pound is dropping fast at the mo, so far versus the TWD its gone from 1pound for 66 dollars to 63 dollars in a week
    and its $1.94 to the pound now......

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    Re: What's the dollar doing?

    Quote Originally Posted by ibm View Post
    Anyone got any insight?
    A wee bit... the US is entering a recession so will have to keep there interest rates low for the foreseeable, this makes holding your cash in a US account (or buying Treasury Bonds) unattractive compared with a country with higher interest rates (e.g. UK until last month). The MPC lowered rates last month and in its minutes all but promised another couple of cuts early this year, thus making Sterling less attractive to investors. So the USD was weak, and still is, but the pound is weakening rather than the USD strengthening to cause these changes.

    (i.e. get your cash before the pound hits the ground)

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