For the first time in several years the U.S. dollar has managed to gain value against other world currencies. During the first three months of 2009, the U.S. dollar is approximately five percent against both the yen and the euro. The gains for the dollar should be considered significant when considering that the U.S. still faces a growing trade imbalance. So far this year, currency traders have shifted their focus of trade in the United States and large current account deficits to high rates of return offered on U.S. debt. The recent strength shown in the dollar has somewhat shifted sentiment in financial markets about the future direction of the currency. A Bloomberg survey released earlier this week shows that the major currency traders expect to see dollar weakness resume later this year, but the sentiment among dollar bears is much weaker than it was in the beginning of year.
The strength shown in the U.S. currency until the year 2009 should be as short duration. The strong gross domestic product (GDP) over the last eighteen months is beginning to show signs of approaching more normal levels over the next two months. Signs of slower economic growth will likely cause a change in sentiment among currency traders to the fundamental problems facing the U.S. economy. The U.S. trade and current account deficits show no signs of abating in the short term. In fact, we expect the trade figures which goes to show further deterioration in the trade balance during the coming months. Most industrialized countries outside the United States continue to experience anemic economic growth. This is putting more pressure on the U.S. dollar as the U.S. consumer continues to buy goods made in Europe, Japan and China.
Although we expect the dollar to resume its gradual decline against other major currencies, the major wild card in our forecast is, of course, China. Recent information from decision makers of China indicates that the Chinese are in no hurry to set the current value of the yuan-dollar relationship. In the event that talks about a possible revaluation arise later this year, the downward pressure on U.S. dollarcould accelerate the currency traders to buy the Japanese yen and other currencies in Asia free trade, which would probably benefit from a revaluation.
The strength shown in the U.S. currency until the year 2009 should be as short duration. The strong gross domestic product (GDP) over the last eighteen months is beginning to show signs of approaching more normal levels over the next two months. Signs of slower economic growth will likely cause a change in sentiment among currency traders to the fundamental problems facing the U.S. economy. The U.S. trade and current account deficits show no signs of abating in the short term. In fact, we expect the trade figures which goes to show further deterioration in the trade balance during the coming months. Most industrialized countries outside the United States continue to experience anemic economic growth. This is putting more pressure on the U.S. dollar as the U.S. consumer continues to buy goods made in Europe, Japan and China.
Although we expect the dollar to resume its gradual decline against other major currencies, the major wild card in our forecast is, of course, China. Recent information from decision makers of China indicates that the Chinese are in no hurry to set the current value of the yuan-dollar relationship. In the event that talks about a possible revaluation arise later this year, the downward pressure on U.S. dollarcould accelerate the currency traders to buy the Japanese yen and other currencies in Asia free trade, which would probably benefit from a revaluation.
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