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I just read an article and it stated that the Dollar has rebounded from one of the weakest currency, to one of the strongest. Is this true ? Could you comment, or direct me appropriately ?The credit crisis and resultant recession has caused many investors to hoard dollars. This ended a six-year cycle of decline. Between 2002 and 2008, the dollar fell 40% in value against the euro and many other currencies. Since April 2008, it has strengthened by 17%.
What happened? The dollar has resumed its role as a global reserve currency. Even though the U.S. economy is in recession, investors are more worried about other countries' economies and currencies, which are more volatile. However, there are signs the dollar may start to weaken again, as the Treasury sells more bonds to support government spending. The Obama administration has publicly proclaimed its support of the dollar's strength.
Comments
The statement “Between 2002 and 2008, the dollar fell 40% in value against the euro and many other currencies. Since April 2008, it has strengthened by 17%” kind of understates the truth.
The US Fed supported the dramatic slump in EURO after its debut and a crisis level drop to 80+ cents. Thus the US dollar weakening was initiated with an objective to stabilizing the EURO.
While it is accurate that the dollar’s strength is a result of relative worsening of other economies, it is also a result of the global dependence of the world economy on the US dollars. The US will have to show the way out.
On the EURO becoming the reserve currency of the world – which was stated as “inevitable” – will have to wait a decade before trying. A good Forex trader should find the Yen a better bet in the short and medium term and also a stable back up to the Dollar. The dis-harmony in the countries backing the EURO and with ECB running the Germany and French mandate, EURO will remain a high risk currency.