Securities markEt
The Federal Reserve has continued to slash interest rates in
The U.S. Dollar’s
an effort to create liquidity during the credit crisis and real estate
mortgage debacle, which has created a one-way slide of the
ReveRSal of
U.S. dollar. In fact, the dollar recently reached 52-week — and
often all-time — lows against the euro (EUR), Australian dollar
(AUD), New Zealand dollar (NZD), Swiss franc (CHF), and
FoRTUne
Canadian dollar (CAD).
This tumble places investors at a crossroad in the currency
market. One camp argues there is still more USD weakness
looming, because of the lingering recession and Federal Reserve
activity. Others say the Fed is at the end of its interest-rate-slashing
cycle, while currencies in most other developed countries are just
beginning to loosen. The Bank of England, for example, has
lowered its lending rate by .5 percent during the last few months.
These actions have some experts predicting the USD
may not continue its slide at all but, instead, be on the
verge of a rally.
Signs of a turning tide
Let’s further explore the case for the U.S. dollar’s rebound.
First, many experts are also predicting that, with an overall
global slowdown, investors will diversify out of the recently
rallying currencies as many of them catch the “financial
crisis flu” that has afflicted the U.S. dollar during the last
several months.
Then, as the central banks in these countries begin to loosen
their policies,
the eur marked an
the U.S. Federal
Reserve likely
all-time high of
will be forced
1.6019
to raise rates
to fight off
inflation.
Second, the
against the usd
USD has been,
until recently,
on april 22.
recording new
lows against a
large basket of
currencies. But as of April, the USD was making lows against
just two currencies — the EUR and the AUD. In fact, the EUR
marked an all-time high of 1.6019 against the USD on April 22.
And all indicators suggest it may move even higher before this
article is published.
In addition, other major currencies have begun to move
down against the U.S. dollar during the last several months.
For example, the USD/CAD currency pair hit an all-time low
of .9081 in November 2007. The USD/JPY reached a multiyear
low of 95.71 in March, and during the same month the
USD/CHF hit its all-time low of .9634.
And most analysts and finance ministers agree: The EUR
With the value of the u.S. dollar plummeting
strength is unsustainable. It is starting to weigh on economic
recently, investors have had huge opportunities
growth. During this year’s G7 meeting — the meeting of the
to make a lot of money on the foreign exchange
finance ministers from the group of seven industrialized nations
worldwide — the group issued a statement about the fluctua-
market by shorting the uSD. Now it’s time to keep
tions of the forex market, which has not happened in more
your eyes peeled for the reversal, which may be
than seven years. And most agree the statement was prompted
just around the corner. by the strength of the European single currency.
64 I July 08 I Growing Wealth I
growingwealthmag.com
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