Friday, October 12, 2007

A look at the dropping dollar

I came across a story on MSN that deals with the dropping value of the dollar. The author of the article thinks that it is going to get worse before it gets better. I sure hope he is wrong! he gave some reasons on why he thinks that the dollar will continue to drop for a while.

Here they are:
  • The U.S. runs a huge, though falling, trade deficit with the rest of the world, about $700 billion annually at current monthly rates. That leaves our trading partners holding an ever-expanding number of dollars.
  • In recent years, only relatively higher U.S. interest rates -- and some premium from the economic stability that comes with being the world's biggest economy -- have kept demand for dollars roughly in step.
  • As the economies of Europe and, for much of the year, Japan have grown faster than the United States in 2007, central banks in those countries have raised interest rates, cutting into the premium investors could earn by holding dollars.
  • As interest-rate differentials have narrowed, as the U.S. economy has slowed and as a weaker dollar has cut the returns to overseas investors, demand for the dollar has weakened. And so has the price of the dollar.

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