Falling Dollar
November 29th, 2006 by Ian
Following the foreign exchange markets closely we have to post about the dollar. The EUR/USD broke above 1.32 today for the first time since early 2005. So after the 5000 pip three year rally from .85 (60% gain), the most the seventeen consecutive rate hikes by the Federal Reserve would cause the EUR/USD to retrace is a measly 17% only to consolidate for a few months and break out towards new highs again?
What does this tell us? Is it really about the housing market, inflation, and other indicators you hear about every day? For that matter, is a weak dollar really all that bad? Yes, the college backpackers and the honeymooners pay a little more for their authentic Italian food and Louvre admission, but maybe it will be made up for by the increase in business the United States gets out of the cheaper American goods and services. By looking at the Big Mac Index the weakest currency in a real sense in the Chinese Yuan, which also happens to be the fastest growing major world economy at an amazing 10+%.
I don’t see an end to the current trend at least for another month, especially when the December has been terrible for the dollar. Over the past 20 years, the euro appreciated against the U.S. dollar 15 out of 20 times.
