Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Reversal Bodes Well for U.S. Dollar

Currencies / US Dollar Oct 03, 2009 - 06:43 PM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleThe G-7 meets this weekend in Istanbul. So what’s on the minds of these leaders of the top industrialized countries of the world?

They’re all worried about currencies. Specifically, how currencies will impact their own recoveries and the recovery of the global economy.


The G-7’s predecessors have a history of assuming an important role in currencies. The G-10 was created to stave off attacks on the dollar and the British pound in the 1960s. And the G-5 was formed in the 1970s to try to manage the new world of flexible exchange rates.

But with new power shift to the G-20 announced last week, the G-7 might not even release a communiqué this time. What we do know, however, is that they will discuss currencies.

Since March …

  • The euro has jumped 21 percent against the dollar,
  • The Canadian dollar has gained 17 percent,
  • The British pound has risen 16 percent,
  • And the Japanese yen has climbed 11 percent.

Most of this currency strength is explained by an improving global economic picture, which has translated into general weakness in the U.S. dollar. That’s because global capital has reversed back out of the safe haven appeal of the dollar and moved to the rest of the world.

The dollar has taken a  beating as investors flocked to riskier assets.
The dollar has taken a beating as investors flocked to riskier assets.

But this dynamic has brought a sharp rise in these currencies and has become an extra threat to what is an already fragile economic recovery.

I’ve written several times in my Money and Markets columns about the mounting pressures that are building between countries as a result of the global recession and the tenuous global recovery.

As these pressures on recovery grow, there has been — and will continue to be — increasing actions to protect and defend that recovery. We’ve already seen a pick-up in protectionist activity. And we’ve already seen competitive currency devaluations, both of the verbal persuasion and via direct action. While both measures have been sworn off by G-20 members, those same member countries have been actively engaging in both.

For now, currencies represent one of the more troubling drags on economies. Governments and central bankers have poured stimulus into their economies only to have it counteracted by a strong currency. And many export-dependent countries are stuck with currencies that have been soaring against the currency of the world’s biggest consumer … the U.S. dollar.

In global trade, strong currencies put a country’s exports at a competitive disadvantage. So exporting your way out of this recession is a tough proposition. And that’s why leaders around the world have stepped up the public commentary on currencies.

Strong Dollar Speak Stepping Up …

U.S. Treasury Secretary Geithner adopted some new language on the dollar when he said: “A strong dollar is important.”

Even Fed Chairman Bernanke chimed in this week and said that “There’s no immediate risk to the dollar.”

'Sharp movements in  currencies can cause adverse impacts.' — ECB president Trichet
“Sharp movements in currencies can cause adverse impacts.” — ECB president Trichet

The president of the European Central Bank, Jean Claude Trichet, has said he’s happy to hear that the U.S. is making statements to the world about the importance of a strong dollar. He added that the strong euro has been discussed among leaders in the Eurozone.

Canada has said that the strength of the Canadian dollar could derail economic recovery. Both the central bank governor and the finance minister have verbally threatened to take action on currency strength.

And last week the Bank of England’s governor said that a weak pound helps recovery.

Then There’s Japan …

The Japanese yen has been by far the strongest major currency over the past two years. When the housing bubble in the U.S. was finally pricked, so was the global credit bubble, and so was the yen carry trade. This is where investors borrowed in yen — paying a measly interest rate — and converted that yen to currencies like the U.S. dollar, the Australian dollar and the Brazilian real where they could earn 5 percent, 10 percent … even more.

Since the top in the housing market, the yen has soared 38 percent against the dollar as hundreds of billions of dollars worth of this carry trade have been reversed. This reversal has been so powerful that the resulting yen strength explains about 55 percent of the weakness in the dollar index over the past two years.

No member of the G-7 needs healthy exports more than Japan does. But the new ruling party in Japan has given some early, mixed signals on yen strength. Now, the new Japanese Finance Minister is also giving verbal cues that Japan will take action against a strong yen if necessary.

The bottom line is that the G-7 countries would like to see a bounce in the dollar. And so would the other large stake holders in the U.S.: China, Brazil and Russia — among the largest foreign holders of Treasuries.

And it appears they just might get their wish sooner, rather than later.

Markets Flashing Warning Signals for Risk Takers …

If stocks continue their  slide, the dollar could strengthen.
If stocks continue their slide, the dollar could strengthen.

The caution-laden statement out of the Federal Reserve meeting last week has so far marked a top in the risk appetite for financial markets and a bottom for the dollar.

The global proxy for recovery and investor risk appetite has been the U.S. stock market. And after generating a key technical reversal signal last week, the slide in stocks has accelerated. In an environment where risk appetite is dictating where the dollar goes, a reversal in the recent trends in financial markets bodes well for the dollar.

And a bounce in the dollar would be a welcome sign for the world and for global recovery.

Regards,

Bryan

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in