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-- Posted Tuesday, 30 June 2009 | Digg This Article | | Source: GoldSeek.com
The opinion of currency analysts on the immediate outlook for the US dollar is almost evenly divided between two extremes: those who think the dollar will rise significantly in value by the end of the year; and those who conclude that the greenback will fall. It is a pretty fundamental disagreement among folk paid a great deal of money to get these things right. Why then is there no consensus on this vitally important matter? Government intervention The main problem appears to be in deciding how the bank bailouts and stimulus packages will impact on the US dollar later this year. Let us look at the two sides of this argument. If the bailouts and stimulus measures do their work then the US economy will continue to recover from the tentative bottom we have reached today, and it will recover ahead of other nations. Ergo the dollar will rise in value relative to other major currencies. This argument could also work in another way: if US markets crash over the summer or into the autumn then a big sell-off of stocks will mean a major shift into the dollar, and rally the currency higher, even when the stock market and economy are tanking. The converse argument is that the 10 per cent rise in the M0 money supply this year is setting the US economy (and others that followed its example) for a sudden burst of inflation. This would be received negatively by currency markets that would mark the dollar down against less inflated money supply currencies. Confusingly this argument might well also apply in the case of the recovery scenario, thus upsetting even the most optimistic forward view of the US economic outlook. Buy or sell? Observers can be forgiven for not knowing whether to buy or sell the US dollar with this divided and polar advice. The obvious rejoinder is to consider economic prospects in other major economies, but again this does not help much. Japan looks in worse shape than the US, the UK too, and the euro-zone has plenty of icebergs buried in its banking system. So if the dollar is to devalue it is far from clear against which currency it might do so, except commodity currencies that do not have fixed pegs to the US currency or precious metals. Hence one way to sit on the fence would be to hedge dollar exposure with precious metals or commodity currencies. Certainly diversification is a tried and tested strategy for dealing with uncertainty.
-- Posted Tuesday, 30 June 2009 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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