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The US dollar on free-fall. Implications?

The dollar has fallen to new lows, battered by low interest rates and concerns about growing US deficits.

One euro now buys $1.2210, on the first trading day after figures showed that the US had created fewer jobs than some had predicted.

The US currency is now at an 11-year low against pound sterling, which buys $1.7350.

Many Asian governments are concerned about the weakness of the dollar, since it is hampering their competitiveness in export markets.

Full story.

So, what effects will the growing weakness of the Dollar have? Has the US government shot itself on the foot with its weak dollar policy? The economy there is growing very rapidly at present. However the currency is reaching such state that the deficit is overshadowing any growth.

Will the euro become the world's favoured currency for transactions? And what of Britain?

Sorry, I'm no expert on this stuff so I was wondering what our resident economic students make of it...
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Comments

  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Well the major concern with the US economy in recent times has been the foreign account deficit so a lower dollar should help them out there.

    It won't please consumers though, higher prices for imports though the US is much more self sufficient than most other economies so the effects won't be as serious as a fall in the UK rate would be for the UK for example.

    I know the Asian govts desperately want the dollar to stay high so they will be hurt, could stunt their growth somewhat, set back a japanese recovery further....
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    my extremely limited ...virtualy non existant grasp of economics tells me ...i do read a lot of news ... that the yen and the euro will be this centuries currencies ...this centuries super powers. the americans have buried themselves internationaly in more ways than one. trust being a biggy.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Yay! Going to NY in the start of March.
    Lots and lots of shopping without feeling too guilty :D
    Sorry, I know this is serious for the US. But this does mean more shoes, without the guilty conscience. If only the currency of the pound would make the same stunt when there in early February :chin:
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Originally posted by morrocan roll
    this centuries super powers. the americans have buried themselves internationaly in more ways than one. trust being a biggy.

    I don't think that international factors play such an important role in the US economy, exports/imports/capital flows make up a smaller percentage of their economy then most other developed nations so if the US were to lose its lead as the economic superpower i doubt whether it would be because of international economic factors such as currency fluctuation............
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    It's certainly no good news for my business. Only today we had some American clients complaining about the exchange rates and how expensive everything is here. They're not the only ones to have said so in the last few months.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Did you do your duty as the clever advisor and suggest to them that getting rid of the neo-cons next year might make their travels abroad much more cost efficient? ;)
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Is a low exchange rate associated with neo-cons?
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    No, the low dollar policy was brought in (and has been sustained) by them in hopes of reversing the negative economic performance and massive trade deficit that has marked the past three years of their mismanagement of the economy.

    Commentary from most politico-economic analysts Ive read since the start of 2001 have pointed to the sweeping departure of this administration from the classic "conservative" strong dollar policy that has marked preceding administrations. Especially in light of the fact that much of the thinking that fuels this administration is derivative of the Reagan administration's voodoo economics (which did not simultaneously subscribe to a weak dollar policy).

    The dangers of the current state of affairs with the "recovery" all but consigned to pre-election number crunching without tangible and meaningful job creation (temp "McJobs" excluded) and the simultaneous trade deficit has also caused this admin to start slamming China to revalue their currency to bail us out of an otherwise unmanageable downward spiral.

    Insofar as the Bush admin has shown how little it cares for the concerns and interests of the rest of the world, the Chinese should see no cause to stunt their own massive economic growth rates just to provide Bush some PR leverage with the electorate.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    This is true, it does seem that the US is more than willing to use its influence to push other nations in the direction of certain policies, noticeably with exchange rates.

    Interesting to see a few months back the japanese central bank buying large quantities of dollars, don't expect Bush liked that.........
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Originally posted by Clandestine
    Did you do your duty as the clever advisor and suggest to them that getting rid of the neo-cons next year might make their travels abroad much more cost efficient? ;)
    On the odd occasion I've had to bite my tongue as unfortunately it would not be appropriate for me to discuss politics with my clients. Luckily the immense majority of our American clients are the liberal and open-minded type anyway.

    At least the current rates make it cheap for us when we go on buying trips and fairs to America. Although I'd rather the rate against the Pound was at 1.45 or so.

    Don't mind the euro being much stronger at the moment though. :D
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