Forex Blog: Currency Trading News & Analysis.

June 3rd 2005

USD may resume decline next year

Despite widening twin deficits, the USD has been on a tear recently. Economists have attempted to explain this contravention of economic logic by pointing to a variety of factors. First, as the Fed continues to hike interest rates, risk-averse investors seeking stable returns have moved funds (back) to the US. In addition, Congress recently announced a tax break to American companies who wish to repatriate overseas profits. This tax holiday has has triggered significant capital inflows, as companies repatriate billions of dollars in earnings. Finally, economists have identified recent uncertainty in the Euro-area as another source of strength in the USD. The EU is decomposing, and EU member economies are stagnating. Once the fallout from these events subsides, the growing current account deficit while drive the USD down, even with a revaluation of the Chinese Yuan. The Times of India reports:

Almost half of China’s exports to the US reflect the cost of imports of intermediate goods from the rest of the Asian region. Therefore, RMB appreciation would have to be accompanied by appreciation of most other Asian currencies, in order to whittle down the US deficit.

Read More: Dollar Is Bound To Fall: Renminbi revaluation will not plug US trade deficit

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Posted by Adam Kritzer | in US Dollar | No Comments »

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© 2004 - 2024 Forex Currency charts © their sources. While we aim to analyze and try to forceast the forex markets, none of what we publish should be taken as personalized investment advice. Forex exchange rates depend on many factors like monetary policy, currency inflation, and geo-political risks that may not be forseen. Forex trading & investing involves a significant risk of loss.