What better way to follow up a summary and analysis of forex markets with a commentary on how they will perform in 2007! Specifically, how will the USD perform in the coming year? Economists and investors alike are basking in the decline of the Dollar in 2006. The current account deficit is projected to grow at an even slower rate this year as US exports become more competitive, and investors are earning spectacular returns upon repatriating gains achieved on foreign investments. Meanwhile, with the US economy slowing and subsequent predictions that the Federal Reserve will lower interest rates to facilitate a soft landing, it looks like more of the same for the USD in 2007. However, the Fed will have to balance a loosening of monetary policy with pricier imports that will result from the declining dollar. In addition, while the laws of economics dictate the USD should fall further, the laws of financial markets (if they can be called laws) may indicate that it has already fallen too much. BusinessWeek reports:

Currency analysts at JPMorgan Chase estimate that, based on long-term influences, including country-by-country differences in productivity, prices, interest rates, and risk, the greenback is now about 10% undervalued.

Read More: Why The Dollar’s Decline Isn’t A Downer