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Look At The Dollar Rocket

One of my 10 predictions at the start of the year was despite the forecasts of most, was the US dollar was going to strengthen against foreign currencies during the year. Well in the last couple weeks the dollar has been on an absolutely impressive tear against almost every currency in the world. The ferocity of this move has simply been amazing, with it moving almost nearly 3% against a basket of currencies in just the last 24 hours. Think of it this way, your dollar in your pocket just got 3% more valuable in the last day, even if it may not seem like it to you.

Basically we're seeing signs of mass liquidations of risky assets (stocks, bonds, commodities, derivatives) around the world and the resulting money is flowing into US dollars, strengthening the dollar against other currencies. While our banking/financial system has it's problems the simple fact of the matter is it's in better shape than many around the world.

The speed at which this move is occurring will likely generate significant effects (problems), but it's very tough to predict in what form they might be. One of the many things that's got my radar up in the last couple days, trying to determine what's likely to happen.

Posted by Matt Heaton on 10/21/2008 11:24 PM

Comments (16)

economy, credit markets

16 Comments on Look At The Dollar Rocket

OCT

2008

Matt,

It's about time. Our currency has been droping like a lead balloon especially against the Euro. Yes it did bring a lot of investment into the U.S. but I still think this will happen. We are still the safest place for people to invest and they know it.

OCT

2008

this is impressive information. I hadn't been paying attention. Very good news for all of us on lots of different fronts.

Matt, it's been reported that more of us are tightening our belts in this financial crisis and economic downturn. If so, the dollar appreciation is not really helping the guy in the street, and may hurt us if it becomes expensive for other countries to buy our goods, visit or invest here? On the other hand, would our trade deficit shrink? I think I have forgotten my economics, so help me.

Matt, we saw this trend occuring as well. Having just come back from europe this past week, newspapers were lined with economic crisis reports, one in fact, mentioning that the U.S has the ability to bail out it's banks, whereas other governments have to borrow money just to do so. When comparing world stock markets year to date, the dow is actually doing quite good. Most other markets have lost more than half of their peak totals from the beginning of the year. Also keep in mind that we're not the only countries funneling money into our banking system, this trend is also reverberated elsewhere and at a much larger scale than you think. Also for all the complaining about gas costs, housing prices, etc. we still have it pretty good. That is unless you think 6.50$/gallon is low and 1200 sq ft homes selling for 1/2 million in many parts of europe. Be glad you live in the United States, our dollar has always traditionally been strong against most other currencies and with the facts starting to come out about how we're doing compared to most other nations in the world, the dollar's value is sure to surge much higher. Great post and a wonderful reminder for those people who haven't or don't watch the market on a regular basis. We still don't recommend investing all your assets into the dollar but at least be aware of the trends as matt showcased above. As mentioned several times over, listening to the media right now might be the biggest mistake of your life as everything currently has political bias to sway voters one way or another. I urge traveling overseas to see how other countries are dealing with these problems or find those sources online. We got a whole new perspective on the global market and agree with matt on so many levels. We should actually be enthusiastic that things aren't worse. It was also refreshing not to have to listen to 23 hours of political coverage and be able to listen to the news from a "journalistic" point of view.

CurrencyU.S. Dollar to Foreign
Currency ($1= )Foreign Currency
to U.S. DollarsChange in
U.S. Dollars

Euro	0.7789	1.2839	+0.0137	Euro vs. U.S. Dollar 1 day 2 day 5 day 10 day 1.2839Bid: 1.2841Ask: 1.3007Day High: 1.2735Day Low:
Japanese Yen	98.8700	0.0101	-1.4900
British Pound	0.6124	1.6329	+0.0136
Canadian Dollar	1.2529	0.7981	+0.0401
Swiss Franc	1.1665	0.8573	+0.0141
Czech Koruna	19.8200	0.0505	+0.2630
Danish Krone	5.8045	0.1723	+0.0953
Hong Kong Dollar	7.7523	0.1290	-0.0011
Mexican Peso	13.6202	0.0734	+0.4052
Norwegian Krone	7.0158	0.1425	+0.1100
Swedish Krona	7.8801	0.1269	+0.1222
Singapore Dollar	1.4979	0.6676	+0.0155
Brazilian Real	2.3385	0.4276	+0.0920
South African Rand	10.9456	0.0914	+0.2906
Israeli Shekel	3.8344	0.2608	+0.0545
Australian Dollar	1.4832	0.6742	+0.0107
New Zealand Dollar	1.6798	0.5953	+0.0432

12:00 AM ET 10/21/2008

Looks to me like it's time to visit Europe and Canada again!

Isn't the soaring deficit going to hurt further or all other country's bailouts killing their currency?

Renee: Look at it this way, it's not so much that the dollar is strengthening, but that all the other currencies are weakening. Other countries in Europe are doing similar bailouts, but many of them at a much larger scale in comparison to GDP. Also as other countries cut rates where we don't have much left to cut that will add upward pressure on the dollar. That said our bailouts and deficis will cause major issues, maybe not dollar devaluation, but much higher interest rates in the future.

You took my comment... it isn't that we are getting stronger as much as the others are getting weaker. Of course, it could actually help the economy in some sectors... I think it is part (and only part) of the reason that oil is dropping like a rock.

Oddly, I was telling some international buyers that they needed to hop the gravy train about 8 months ago... even weakness in the US real estate market could still make them money... and if the real estate market here started to show strength, they could make a load.

Yeah, it's part of the reason, we're also going to see tremendous demand destruction going into the economic slowdown and a lot of the run up in oils price was also due to speculation which is being unwound. We're down to what $66/barrel now, that's good to see, and it'll probably drop further in the next year. And this is coming from someone who believes we have in fact hit peak oil too :)

EVERY crash indicator of mine is now lit up and flashing bright red, and I'm not just talking stock market crash. Not necessarily saying tomorrow but the chances of something happening in the next week that is pretty cataclysmic is pretty high.