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A Dollar Bear Market
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We are in a dollar bear market. The dollar declined to a record low against the euro as a slowdown in the world's largest economy reduces the allure of U.S. assets among global investors. A Federal Reserve index measuring the dollar against other major currencies sank this week to the weakest level in the index's 36-year history. The yen fell to an all-time low against the euro as falling consumer prices in Japan damped bets on increased borrowing costs.
From my point of view, we will see further weak macro economic numbers his week. My prediction is that even we will have some further better than expected earnings( might be the last stage) the stock market will fall this week. The market already looking for pretext to cash in. We will have some good earnings for some companies.The hot topic for this week is where the dollar is headed to?
The dollar fell 0.45 percent this week to $1.3652 per euro. It reached $1.3681 yesterday, eclipsing the previous record low of $1.3666, which was touched April 25 and first set Dec. 30, 2004. The euro debuted in January 1999 at about $1.17.
The U.S. currency slumped yesterday after the Commerce Department reported that gross domestic product grew at an annual rate of 1.3 percent in January through March, after a 2.5 percent fourth-quarter gain. The market is negative for the dollar now, and this report pushed people to jump to sell the dollar.
The dollar has fallen 16 percent against the euro since it began trading in 1999. The U.S. currency has declined 20 percent versus the pound, 36 percent against the Australian currency, 40 percent versus the New Zealand currency and 38 percent against its Canadian counterpart over the same period.
The Federal Reserve's U.S. Trade Weighted Major Currency Index weakened to an all-time low of 78.99 on April 25 and is down 1.8 percent this year.
The current account, a broad definition of trade that includes investment income and transfers, posted a record deficit of $856.7 billion last year.
The main trend is averse to the dolar.With the U.S. in moderate slowdown, that's not encouraging foreign savers at the old dollar exchange rate. However if the dollar sees 1.40 per euro than it is no longer benefit for US economy. It might push many golabl investors to exchane their reserves and the prestige of dollar will lose a great value. It is not something Fed wants as the owner of no:1 reserve money in the world. My prediction is that dollar will fall to 1.3750 vs euro in a month or even less.The only thing can stop the fall is Fed by declaring the possibility of increasing the rates.However it will be a temprary solution for dolar weakness even it comes true.
Boon to Companies
A declining dollar is benefiting U.S. companies such as McDonald's Corp., EBay Inc. and 3M Co., whose overseas revenue has increased when expressed in dollar terms.
European companies relying on exports may feel the pinch as a strengthening euro makes their goods less competitive in global markets. A strong euro may prompt European governments to voice concern on the currency.
The yen declined against 15 out of 16 major currencies after the Bank of Japan yesterday lowered its inflation forecast for this year and a government report showed Japan's consumer prices fell last month.
Investors are speculating the BOJ will refrain from boosting interest rates at a faster pace, spurring buying of higher-yielding assets funded by loans in Japan, a practice known as the carry trade. The BOJ kept its benchmark rate unchanged at 0.5 percent yesterday, the lowest among major economies.
The Japanese currency dropped 1.04 percent this week to 163.09 per euro and touched an all-time low of 163.24 per euro yesterday. It was the yen's eighth straight weekly decline against the 13-country currency. The yen also fell 0.71 percent to 119.53 per dollar.
Benchmark Rates
The Fed has held its target rate for overnight lending between banks at 5.25 percent since June, while the European Central Bank raised its benchmark a quarter percentage point to 3.75 percent last month.
The yield advantage of 10-year U.S. Treasury notes over similar-maturity German bunds touched 0.459 percentage point this week, the lowest since November 2004. A narrowing yield gap dims the allure of dollar-denominated assets. |
| Tarih
: 30.04.2007 |
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© 2006 Mert TOKER All Rights Reserved. |
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