Dollar Rising ???

Source: http://www.businessweek.com/magazine/content/08_31/b4094010597032.htm?campaign_id=rss_null

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Business Outlook July 24, 2008

Why the Dollar May Be Ready for a Rebound

As outlooks for the euro zone and Britain dim, central bankers will likely be forced to lower interest rates, creating conditions that could restore some of the U.S. currency’s value

By James C. Cooper

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After two years of stability in 2005 and 2006, the dollar has swooned 13% against a basket of major currencies since early 2007. The reasons: Prospects for U.S. growth relative to those overseas began to fade, and the Federal Reserve started a series of sharp cuts in interest rates, while other central banks were either holding rates steady or raising them, as in the case of the European Central Bank (ECB). As a result, dollar-based assets lost some of their attractiveness compared with those valued in other currencies.

This means the interest-rate outlook is also changing. Unless the U.S. falls into a severe recession, the Federal Reserve appears to be finished cutting rates, and some policymakers are already calling for hikes. At some point, other central banks will likely be forced to reduce rates. Lower oil prices would facilitate that decision, especially at the ECB, where worries about the broader inflation consequences of costlier energy are holding rates up. Even the recent 10% drop in oil prices, if sustained, would significantly reduce global inflation next year.

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Source: http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348918&story_id=10924165

US Recession – 3: Dollar Value

http://www.economist.com/finance/displaystory.cfm?story_id=10924165

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Divine intervention

Under the right conditions, currency intervention can work. So is it time to support the dollar?

Indeed, the main cause of the dollar’s recent slide has been the ECB’s refusal to cut interest rates (because of its inflation concerns) while the Fed is slashing rates to support growth. Or to put it another way, the weak dollar is consistent with the economic fundamentals, namely that America is in recession whereas the euro zone is still growing. The ECB will want to see inflation easing and more evidence that growth is slowing before it cuts rates. There is also little chance right now that the American government would join in any action to push up the dollar, because the cheap currency is giving a helpful boost to exports…