The US dollar has reemerged for the second time in the last couple weeks. It seems possible the greenback… … may be nearing a bottom, or perhaps reached one already, considering the firmness it has maintained in recent weeks. The currency had been on a perpetual slide since the middle of last year, falling significantly in value against all major currencies.

As much as any other financial market driven by speculation, currencies seem to move well ahead of actual economic development. With the hope increasing for an economic turnaround in the US for the latter part of 2008, many currency speculators seem to be banking on a strong dollar rebound. While the housing market, a central component of the economic slide in the last year, seems to still be facing trouble, credit markets have had several promising developments of late.

It is certainly possible the dollar could still fall even more dramatically. Since current dollar investing likely stems from expectation of future economic improvements, it would just take a significant negative event or direction to cause a potential free fall. Lately, however, the dollar, like the equities markets, has been more and more resilient to negative reports, and more and more enthusiastic about positive ones. Perhaps speculators have had enough.

After falling to a value of 97 yen during March, the dollar has since rebounded twice back over 100 yen. Today (April 3) it continued a weeklong climb that touched 103 yen in overnight trade. It currently sits at a value of 102.35 yen.

The dollar has also fought back against several other major currencies this week. It is now worth 1.0106 Swiss francs after falling below even value a couple times. The dollar also pushed back over .5 British pounds after dropping below for the last couple weeks. It is currently worth .5014 pounds. The Euro still remains fairly strong, but the dollar is a couple pips stronger than it had been last week.

An improved dollar often offers more psychological benefits to American consumers than tangible ones. However, a strong dollar would help push down high oil and gas prices that have made transportation costs expensive. It would also help offset some rising consumer prices, including several food categories that are near all time high prices. Americans want affordable products.

From a business standpoint, companies that operate globally are surviving the US downturn much better than domestic companies. Exporters are benefiting from the perceived cheapness of American products in the global market. This is an effect of a weakened currency. American companies that do business in the US and rely on imports of foreign supplies or parts are really hurting from the weak dollar.

This month’s pending estimate of first quarter (2008) gross domestic product could be the next major catalyst for a dollar move. Many forecasts project a slight contraction of the GDP. An estimate for this would likely see a brief decline in dollar sentiment, but based on expectations, it would probably be short-lived. A much worse, or much better result than expected, could create a strong surge one direction or the other.

The impetus of the dollar movement is not just felt in the US. Global business markets are impacted dramatically by the dollar and its affect on foreign trade. Global stability is also centered greatly on the dollar. A strong dollar is perceived as a good indicator of a strong global economic picture. Many companies maintain high quantities of dollars in their money reserves as well, a signal of its credibility in the world. It is likely some countries have reduced their reliance on the dollar in lieu of its medium-term downward trend.

Market Recap

Stocks were down Wednesday following Tuesday’s huge gains. The Dow dropped 48 points while the NASDAQ and S&P closed just on the red side of flat. Oil prices jumped, but Fed Chief Bernanke noting the possibility of recession was the most important news on the day. Equities were flat on Thursday. The Dow gained a modest 20 points while the S&P gained back the single points they each lost Wednesday. Bernanke defended the Fed’s support of the Bear Stearns buy out. Jobless claims reached their highest point since September 2005.

Neil Kokemuller
Thursday, April 3, 2008
8:54 PM EST

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 with a specialization in marketing.

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.