Forecast: Dollar Will Drop and Can Lose Its Role in World Economy
The US dollar was weakening in 2010 amid the concerns about the US economy and as the quantitative easing damped the appeal of the currency. On the other hand, the dollar managed to rise somewhat recently. What the future holds for the US currency this year?
Performance of the dollar is tied with the health of the US economy. The economy looked rather weak for the most part of the year, but now slowly recovers. Is the recovery sustainable? There are positive factors for the US economy. One of them is the extending of the
But, as the Morgan Stanley pointed out, there are also negative factors for the US economy. The weak housing market in the US, anticipated spending cuts, possible negative impact on the global growth of the European debt crisis and China’s tightening – all these may have the negative influence on the economic growth of the US. Many economists believe that the Federal Reserve’s quantitative easing would have disastrous effect on the economy of the United States. In general, the outlook for the US economy remains quite uncertain.
Another way to think about the future of the dollar is to look at its possible performance against different currencies as the strength of the dollar is actually measured relatively to other currencies, and we can expect various currencies to behave differently. The euro comes to mind when we think about
The list of the currencies that looks stronger than the greenback is much more extensive. The commodity and the
And we should not forget the Chinese yuan as some experts go as far as forecasting this currency to take the role of the dollar as the world’s reserve currency. The decision of China and Russia to use their own currencies in trades between the two countries, abandoning the dollar as the currency of an exchange, makes the forecast not as unbelievable as one may think. The future of the dollar looks even grimmer after France took the chairmanship of the Group of Twenty as the French President Nicolas Sarkozy is known for his criticism of the dollar’s role in the world economy, blaming the currency for the global crisis and the trade imbalances.
What a way to profit from the expected decline of the dollar? The Money Morning suggests to go long on the Chinese yuan, the Swiss franc and the Australian dollar either directly or using the ETFs. You should remember that the dollar has potential to rise in the first quarter of 2011, but that should be considered an opportunity to sell dollars you have, not to buy them.
If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.
Earlier News About the US Dollar:
- Global Recovery Damps Demand for Safety, Weakening Dollar (2010-12-31)
- Poor Economic Data & Rising Commodities Weaken US Dollar (2010-12-28)
- US Dollar Declines vs. Commodity Currencies on Signs of Recovery (2010-12-24)
- Dollar Drops vs. Yen, Rises vs. Euro on US GDP & Home Sales (2010-12-22)
- Dollar Strengthens as Fears of EU Debt Crisis Weren't Eased (2010-12-18)