Thursday, March 20, 2008

USD May Bottom Out

As far as Dollar bulls are concerned, all news is bad news. An economic recession seems inevitable. Interest rates are already negative in real terms, and are now the lowest in the industrialized world, save Japan. It's still unclear how much subprime debt will be written down by financial companies before all is said and done. But analysts from Brown Brothers Harriman, an investment bank, think the Dollar's multi-year decline is coming to an end. There are two main reasons underlying their rationale. The first point is purely technical- that the all of the bad news and in fact, the worst possible scenario, has already been priced into the Dollar. The second point is fundamental- that the speculative hot money that has poured into the US as foreign investors take advantage of a weak Dollar and that is sustaining the US current account deficit is now transitioning into long-term foreign direct investment. The Financial Post reports:

In addition, BBH believes that in a weak dollar environment, foreign companies will now start looking to move production and sourcing to the United States, following the successful example of Japanese auto makers.

Read More: Greenback is nearing bottom, currency experts say

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