Articles Archive for June 2008

The comeback of the dollar

10 June 2008 Sören Zschoche 16 Comments Money

5 years ago you had to pay 0,80 US-Dollar to receive one Euro, now 5 years later in 2008 you have to pay two times the price. That´s enormous, the Euro has won 100 % in value against the Dollar in just 5 years and achieved it´s all-time high on the 22.04.08 with a exchange rate of 1,6018. By the way, this was seemingly so exciting that even Europe’s yellow press took notice of it and came up with headlines like “Shopping for the half price” or “Visit New York, now”. I had to laugh when in November 2007 the international Supermodel Gisele Buendchen explained that from now on she will only accept Euro for her payment. The European exports went down and particularly the world export champion Germany yammered very much.

So the question is how long will the dollar fall in price? Sure thing is that the dollar will come back, so don´t worry. The question is when it will happen, which is not easy to answer. However, in my opinion the dollar will come back either in the next month or at the latest just after the U.S. elections.

Here´s why:

The first and most important reason for my theory is fact that the FED can´t relax the monetary policy anymore and the FED wouldn´t do that neither. On tuesday the third of Juli, for example, even Ben Bernanke the chief of the FED did something which is extremely rare for the FED he spoke about the exchange rate of the US-Dollar and claimed the U.S. Dollar is sharply underrated. And even though also the EZB, the European central bank, has announced to rise the bank lending rates again in my opinion the comeback will come.

Because whereas Europe and the rest of the world are slipping in a recession the weak dollar is helping the U.S. economy to get better through the crisis. Companies like IKEA, Toyota or BMW are investing huge amounts of money in in the U.S. now, the U.S export will grow while the imports will decrease. That all will help the dollar to recover. There is only the impulse from the FED missing but that surely will come right after the elections or even earlier.

But nobody can exactly know how the markets will behave so don´t take my words at face value, it´s just an opinion…