The dollar has made a surge against the Euro and Pound, along with several other major currencies, in the last few days. Even as the Dow fell sharply below 7,000 points, closing at 6,726 Tuesday (March 3), the dollar remains poised to break through near-term highs against its European counterparts.

The Dow is now well under half its value of nearly a year and a half ago. At one point, the Dow was around 14,100 points. The index currently sits well under half of this value. How low can the index go? Speculation and estimates vary greatly. Worst-case scenarios suggest perhaps a low of 3,000 points is within reach. Other more positive outlooks believe a low somewhere in the 4,200-5,800 point range is more likely, based on various technical indicators.

The dollar still has managed to improve its worth against many major currencies, thanks as much to broadening global concerns as anything else. The European Union is still suffering with its own economic turmoil, including serious credit and real estate problems. The firmness of oil at $40 and below in recent weeks has also kept the dollar higher against other countries not quite as dependent on foreign oil as the US.

The Euro is currently worth just under $1.25. The drop off from nearly $1.45 in mid-December to the current low has positioned the Euro at its near-term low from November-December. A significant fall below the current level could lead to a tremendous move in the Euro-dollar ratio. Many forecasts have called for a Euro worth $.95 by the end of 2009. A break below the near-term low could definitely spell trouble for the European Union’s currency.

The British Pound still has some more room to go to clear its near-term low against the dollar, but the currency could clear the remaining five pips pretty quickly in the current market. One Pound is currently worth $1.4032. Its low point from mid-January was just above $1.35. The Pound, like the Euro, has been on a freefall since oil and gas prices starting climbing in mid-July 2008. The Pound at one point over a year ago was at $2.06, while the Euro was over $1.61 just under a year ago.

The dollar has also been inching higher against the yen, and it is now approaching 100 yen again. One dollar is currently netting 98.53 yen, which is a solid 11 pips above its low near 87 yen, reached a couple times in late 2008. One dollar was worth an all-time best 125-plus yen over one and a half years ago before the US economy went in the tank. The “unwinding” of the carry trade brought the dollar-yen ratio down. Since the dollar and yen are both at zero per cent base interest rates now, the carry trade is not a factor in the ratio. The Japanese economy is seeing gross domestic product performance that is even worse than the US data.

There are still a lot of negative signs about the US economy moving forward that may begin to wear more on the dollar if other economies pick up sooner. Warren Buffett cast his dark cloud on the economy last week by suggesting a recover in 2009 is unlikely, a message counter to that shared previously by Fed Chief Ben Bernanke. Housing and jobless data are still setting records as well. It will be interesting to see what happens to the greenback over the next several months.

Market Recap

Stocks broke through the psychological 7,000 point barrier Monday as the Dow dropped 299 points. Continued fear over banking and credit came to life after a $30 billion additional bailout for AIG was announced. The Dow dropped another 37 points on Tuesday and closed at 6,726. Blockbuster was in the news after a report suggested the company was meeting with a bankruptcy lawyer. The company says that it is not going bankrupt but is seeking refinancing. The dollar is nearing near-term highs against the Euro and the Pound.

Neil Kokemuller
9:50 PM EST
Tuesday, March 3, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.