Bad Times For The US Dollar?
What is your opinion of the US dollar? Do you think of it as a constantly strong currency? It must have its weak points of course, and during December it almost seemed as if some of those weak points were starting to show beneath its armor. After all, this reserve currency has seemed impervious to what has been going on in the economy at large. The US isn’t immune to job losses, a poor economy and poor sales, so why should their currency be immune?
It seems as if the larger picture is starting to reflect the fact that they are not immune as some people might have thought. Take this following news story from the Forex markets, for example. Written on the 18th December, just a week before Christmas, it uses the words “dollar” and “clobbered” in the same sentence. Not a good mix, as far as the Americans are concerned. You can see the story here.
The story focuses mainly on the battle between the US dollar and the Euro. On the 1st December the US dollar was comfortably claiming 0.7931 Euros to the dollar, but things wouldn’t stay that way for long. A small blip occurred the next day, dropping the amount to 0.7875, but then it picked up again and finished the week on 0.7895.
But if people thought the US dollar could weather any storm and successfully hold its value no matter what was going on around it, they were wrong. The 11th saw a closing figure of 0.7567, and that was by no means the bottom of the pile for the month, as there was worse to come.
The weakening dollar no doubt led a lot of people to start working out numbers on their currency converter. Forex traders were figuring out which currency to back now, while those hoping for a holiday in Europe in the near future might have changed their minds. And when the 18th brought a closing exchange rate of just 0.6841, it was clear that the Euro had the upper hand against the US dollar for once – even if it wasn’t going to turn out to be permanent.
So how did the rest of the month go? We had two partial weeks of trading left to run, thanks to the Bank Holidays in place over Christmas and New Year. And while everyone was trying to enjoy the holidays most people would certainly have been wondering what fresh news was going to await them when they returned to normality.
The US dollar limped home on Christmas Eve with an exchange rate of 0.7140 – somewhat down on the beginning of the month. And it couldn’t pull back much more before the year came to a close, bagging an exchange rate of 0.7185 to finish with on New Year’s Eve.
So what happens from now on? Will the US dollar now enter a more prolonged period of struggle against the Euro at least? Will it start experiencing problems against other currencies? Or will it bounce back as it has done so many times before?
Whatever happens, it is clear that we cannot pin down any particular result in advance. Every single developed country is having major problems in trying to minimise the effects of the economic downturn. Jobs are going, businesses are folding and it seems as if more bad news is being announced with every day that goes by.
If you take a closer look at all the news events and the currency exchange rates at the same time, you will see a pattern. Whenever a country announces a detrimental event – such as a raft of job losses for example – you will very often see a dip in their exchange rate too.
This is because people tend to lose faith in that currency, due to the other events that are going on which have an effect on it. It shows that the picture is not as simple as you may think.
So what is coming up for the US dollar next? The truth is that no one can be sure, and whether or not it regains the strength it seemed to lose during December remains to be seen. We will, however, be watching very closely…
