Is The US Dollar Over The Worst?

Posted June 01, 2009

Well we have all seen good news and bad news hitting the headlines recently, thanks to the recession. And let’s face it, more of it has been bad than good.


But according to the Chairman of the Federal Reserve in America, Ben Bernanke, any thoughts that the USA might have to cope with the threat of deflation should now be dispelled.

We reported last month on the idea that the US dollar might be improving, but this latest statement from Mr Bernanke is certainly worth reading about.  One news story comes courtesy of AFP, and can be read here

Some news reports were more skeptical than others though, as can be seen from this report found on the Wall Street Journal website.  You can read it at this link.   Which report has it right, and are they right to be skeptical?

So how has the US dollar been doing over the last few days, since the beginning of May?  Let’s take a look at the head to head that has occurred between the dollar and the Euro for starters, and see what we can glean from that.

It is an interesting pattern, as we are looking at data up to and including the 11th May.  That gives us just over a week to go on – and a very intriguing week it was at that.  The 1st May saw the US dollar standing at 0.7532, and although it went up a little to 0.7562 on the 4th, it was down to 0.7461 the very next day.  What would come next?

Well as it turned out, there was a brief jump up to 0.7506 the following day, before two small consecutive falls occurred to leave the dollar standing on 0.7448 against the Euro at the end of the week.  And when Monday the 11th came to a close, the figure was down to 0.7367.

So was this an isolated incident?  Mr Bernanke’s enthusiasm for the strength of the dollar returning doesn’t seem to be played out by the actual figures.  And since the Wall Street Journal report seemed to indicate that things were indeed perhaps not quite as good as he hoped, it is the Wall Street Journal that is looking more accurate at the moment.

But let us probe deeper.  Let’s take a look at how the US dollar performed in early May against another well known currency – the British pound.  Now this currency really has been having a rough time of it in recent months, so perhaps here the US dollar will be seen to be a lot stronger?

Here was the exchange rate as it stood on the 1st May – one US dollar would get you 0.6729 British pounds.  But that is where it started to get rather interesting.  When things kicked off again on the 5th – after the Bank Holiday weekend in the UK – the exchange rate had changed in favor of the pound.  So the US dollar was down to a rate of 0.6609.  Was this going to be a repeat of the pattern we had seen against the Euro?

Things looked a little better the following day as the dollar fought back to 0.6651, but then it slipped again and finished up on 0.6620 at the close of play on the 7th.

There was a marginal improvement in favor of the dollar as the week came to a close, and it settled for a figure of 0.6634.  But even as the following week got started the pound proved that there is still life in it – and it finished up challenging the US dollar and ending the tussle on 0.6620.

So has Ben Bernanke been looking at these results as he makes his statements to the press?  Of course we would assume that he has – but perhaps he is looking ahead rather than at the actual currency exchange rates we are seeing at the moment.  Or maybe his own currency converter is telling him something different.

Who knows?  But it is a little worrying that both the Euro and the British pound – recently deemed to be the weaker currencies by far when held up against the US dollar – have got it in a position of weakness at the moment.

We can expect things to keep changing over time, but it will be interesting to see if the rest of May carries on panning out the same way that it started.  And of course, we should see what Mr Bernanke has to say next.