Is the dollar still plagued by the economy, widening deficits and inflation?
*Bloomberg, by Ye Xie & Anchalee Worrachate, August 11, 2008:
"Dollar Gain Signals Pain as Rally Prompts Exit From Bull Trade
Just because the dollar posted its biggest gain against the euro in
almost eight years doesn't mean the U.S. currency won't continue to be
plagued by the nation's slowing economy, widening budget and trade
deficits and negative inflation-adjusted interest rates.
The 4 percent surge against the single European currency this month was
enough to prompt Bank of America Corp. to tell its customers to exit
trades betting on more gains. Morgan Stanley still forecasts the
greenback will approach a record low by October as the U.S. housing
slump and credit-market losses keep the Federal Reserve from raising
interest rates this year.
Barclays Plc in London and New York-based Merrill Lynch & Co. said
trading patterns suggest the dollar's 5.1 percent gain in the past
three weeks measured by an index of six major trading partners can't be
sustained.
That's mostly because there's no indication the U.S. will return to the
late 1990s annualized gross domestic product growth of 4.23 percent
with inflation running at no more than 3.3 percent. Since September,
2000, the dollar has declined more than 44 percent as inflation
accelerated to an annual 5 percent today, growth slowed to 1.9 percent
and U.S. interest rates provide no cushion for holding U.S. assets.
'I would not chase the dollar's strength versus the euro as the pair
has moved beyond interest-rate support,' said Sophia Drossos, a
strategist in New York at Morgan Stanley, who also recommended closing
out bets on the dollar versus the currencies of Malaysia and Singapore.
'The dollar is not out of the woods. It will take the market a while to
come around to our point of view.'"
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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