Monday, 14 September 2009

How low will the Dollar go?

The US, which has engaged in a more limited form of quantitative easing than the UK, has seen the value of the US Dollar shrink as the global markets have rallied. Historically, the Dollar has been seen as a safe-haven for money when times are tough and thus as investors want to take more risk, the Dollar can fall in value. So with the rally, the Dollar has fallen in value.

Gold too has been rising, as it often does in Dollar weakness, although the correlation is breaking down somewhat. This though can be a sign that the markets see a lot of risk in the current system.

Also the British Pound Sterling has recovered some of its weight in the world in recent months, today it is at $1.65 to the Pound. Way of the 2-1 ratio of pre-credit crunch, but a long way up from its lows of $1.35 of earlier this year.

As currency movements go in cycles though, this may prove to be a low for the US Dollar, which could well rally until nearly Christmas. This means a worse exchange rate for the Pound if you are looking to travel or invest abroad.

Worse of course is that the Bank of England is intent on printing more money to cover our government's profligate spending, which means the Pound will sink even lower. My guess is that it will re-test the lows of earlier this year and fall below parity with the Euro next year at some point.

Get those travellers cheques in early....

8 comments:

Steven_L said...

Aren't there people starting to talk of a 'dollar carry trade' now?

That might mean a long drawn out decline until the next big snap in global stock markets (possibly caused by a rise in $ interest rates?), followed by a massive snap rebound?

Blue Eyes said...

What is the outlook for UK inflation? A large, kitchen-shaped decision rests on it...

James Higham said...

Also the British Pound Sterling has recovered some of its weight in the world in recent months, today it is at $1.65 to the Pound.

0.61 in round terms - it used to be around 0.625 so that's not too bad really.

Demetrius said...

In all the chuntering going on, there are two things often absent. One is currency movements, often unpredictable and out of government control. The other, alled to it, is real rates of interest. If the pound were to go down, even marginally, and the rates of interest go up, then the situation will worsen.

Bill Quango MP said...

BE: You should be able to find a kitchen cheap enough in the pre/post Xmas kitchen sales at Homebase or Wickes or B&Q that should remove the worry about inflation. Some genuine bargains should be found.

Mark Wadsworth said...

Here's a story that you'll like on shipping (although I can't remember whether CU or ND is this blog's shipping correspondent).

Nick Drew said...

[our shipping editor writes]

tx, Mark

the great complex of deepwater creeks between Falmouth and Truro looked similar when I was last there

financial spread betting said...

Not as low as the pound or euro