WEST PALM BEACH, FL (www.hedgeco.net) – The US dollar bounced to a two-month high against the euro in recent trading, such gain came on the news that the US net capital inflows in November rose,fuelled by new speculation that the US interest rates may be raised by the Federal Reserve next month.. Last week, the Euro traded at $US1.3022 dollars, dropping from $US1.3077, the euro alsobreached the key support level of $US1.30, but subsequently bounced back. The creation and successful launch of the Euro is behind this tremendous dollar collapse – and it is the reason why thisprocess will not stop until the dollar is no longer the world’s number one reserve and trade currency. In latest currency trading the euro closed at $US1.31 in market action on Monday January 24,2005.
The growing US current account deficit along with worries over continued growth of the US economy has helped to stimulate declines for the dollar. Some market analysts believe the perception that the Bush Administration may tolerate a weaker US dollar has also helped to push the dollar to lower levels. It is perceived that a weaker dollar will make the US products cheaper overseas and may help to reduce the growing US trade deficit. Last November, the US trade deficit reached $60.3 billion, a jump of 7.7 percent from the October level.
Since the dollar decline began few years ago, the US currency had dropped about 30% against the euro; many currency traders still remain skeptical of the dollar�s chances of further recovery. Some currency strategists believe that the dollar�s troubles are not yet over. The recent gain of 4 percent against the euro was the result of currency speculator�s anticipation that the Fed might increase the key interest rate level during its February meeting. Alex Beuzelin, a senior market analyst with Ruesch International in Washington D.C. said, “The market has bid the greenback higher recently on the prospect of a potentially more-aggressive pace of monetary policy tightening from the Fed.�
Some of the good economic news triggering the dollar rise includes the US Treasury report, which said that total net capital inflows rose to $81 billion in November from $48.3 billion in October. The report also stated that the foreign purchases of US securities increased to $99.7 billion in November from the level of $65.4 billion recorded in October. Moreover it was also disclosed in the report that foreign central banks bought $27.9 billion of US assets, including $21 billion of US Treasury Securities.
Such good news, which came in as a surprise to market expectations, helped the dollar rally, but no one can say for certain, is whether the 4 percent dollar rally is enough reason to celebrate when the dollar had dropped about 30 percent since the recent decline started few years ago. Many economists believe that the declining dollar may also be caused in part by anticipated capital outflows away from the United States to possibly Europe, since Japan is still not yet out of its own economic troubles. The euro is increasingly seen as a rival to the US dollar, such rivalry may also lead to capital outflows from the US in favor of Europe.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
HedgeCo.Net is the most popular hedge fund database and community in the world. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com.
