Friday, April 29, 2011

SOS for the Dollar


The dollar continues to sink against most major currencies.

No one in Washington seems to be all that concerned - after all, a weaker dollar presumably makes American products and workers more competitive globally, so what's the worry?

Overseas, of course, the rapidly dwindling value of the dollar is a huge story.

As background, here's columnist James Mackinosh writing in this morning's Financial Times:

Weak, weaker, weakest. The Fed's own measure of the dollar in real terms against America's main trading partners shows that it ended March at its lowest since it first traded freely in 1973. Since then it has fallen further, as Mr. Bernanke's supportive comments on Wednesday, far from shoring up the greenback, accelerated its decline. Worse-than-expected economic growth added to the dollar's woes.

Much of the recent rise in gold and other precious metals, of course, can be traced to the increasing concern that the dollar may be losing its luster as the world's reserve currency.

With no obvious replacement for the dollar, world central banks are either turning to gold or, in the case of Hong Kong and Singapore, considering using a basket of currencies rather than the dollar to peg the value of their own currencies.

For now our markets seem unconcerned - stocks continue to inch higher, and bonds are increasing in value as well. But a longer-term bout of dollar malaise may eventually come back to haunt us.