Prospect for a Stronger United States Dollar Vs Foreign Currency Valuations

United States Dollar exchange rate steadily been declining against major trading partners currency countries including the Japanese Yen (10/14/09 - 89.40 Yen) and Euro Dollar (10/14/09 - 1.4941), during the past fourteen months, as of October 2009. 1 Reasons for the devaluation of the U.S. Dollar against foreign currencies: Staggering unemployment rate (U.S. A.) & budget and trade deficit concerns (4). Also, according to Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada's biggest bank by assets said: "the re-emergence of financial concerns places a question mark on the Fed's ability to raise interest rates." (5). When interest rates are raised at least to stabilizes the devaluation of the currency. Furthermore, comments by a top Federal Reserve official confirmed U.S. interest rates would reasonable remain low for some time. (7)

Consequence of a devaluating U.S. currency, metal prices including gold steadily increase to recent new highs (10/13/09 intra - day high $1.069.70 2) and price of crude oil climbs higher (above $78.00 - 10/16/09 3) per barrel. Metal prices tend to increase as the U.S. Dollar falls as a prelude or concern for inflation (or hedge against inflation), when imported goods become more expensive to import 8. Since crude oil is based upon the value of the U.S. Dollar, a devaluation of the currency places upward pressure on crude oil prices, besides fundamental reasons for appreciation, including demand and lower inventory supplies (6). No doubt, a devaluating U.S. currency narrows the U.S. trade deficit but makes our foreign trading partners very unhappy: U.S. trade deficit for the month of August (2009) narrowed by $30.71 billion from $31.85 billion attributed to 0.2% increase in exports and 0.6% decrease in imports (9). United States foreign trade partners around the world realize, as the U.S. Dollar decreases their own currencies valuation increases, costing more to export goods. Foreign central banks, according to past history, tend to raise their interest rates for shadowing better or improved economic news, and thus off-setting their currencies devaluation, especially against one of their biggest trading partners around the world the United States. 12

Sooner than later, the tide will turn and the U.S. Dollar will see the end of a sell off against currencies around the world. Number of plausible reasons will be noted appreciating U.S. Dollar currency and consequentially have more positive outcomes than negative results. Recent statement by the Federal Open Market Committee (last meeting September 22 - 23, 2009) regarding the United States economy may trigger higher interests in the near future: "Economic activity had picked up" while conditions in the financial markets have "improved further"". Financial analysts waiting to hear in the near future comments by the Federal Reserve Chairman Ben Bernanke (and Federal Reserve members) indicating interest rates will start rising, as the US economy shows signs of a turn - around out of a recession. 9 Reported on October 15, 2009: U.S. Labor Department unemployment benefits dropped for the second consecutive week to new nine-month lows (Week ending October 3, 2009: Seasonably adjusted insured unemployment dropped 75,000 from the preceding week's revised level of 6.067 million.). 10. Subsequently for shadowing the decline in the weekly claims for unemployment benefits, the monthly unemployment rate should decrease from a high of 9.8 percent or hopefully not much higher from the current rate. The stimulus package passed by Congress and signed by President Obama early 2009, suggests the program should contribute to stimulating job growth across the country. 11 The Congressional Budget Office forecast the U.S. federal budget deficit should decline by $325 billion or lower (24% decline from previous estimate), as consequence of higher anticipated tax payments and growth of the economy. Underlying a reduction in the U.S. budget deficit further contributes to a stronger valuation of its currency in the future. 14 Also, when consumers increase demand for goods and services, manufactures will need to hire workers to increase demand to replenish inventory depletion. Many economists would agree one of the last economic indications of a turn - around in the US economy improvement is the unemployment rate, positive implications for a stronger U. S. currency valuation.

History tends to repeat itself, regarding United States Dollar versus our trading partners currencies around the world. United States Dollar valuation tends to appreciate respectful of other foreign currencies, when good U.S. economic news is reported: Including recently and historical related to retail sales, trade, manufacturing activity, new home construction, big ticket items purchased, and eventual improvement in the unemployment rate. 13 According to past history, foreign investors have stepped - up to buy U.S. soft and hard assets, including equities (stocks and bonds) and real estate, when our currency appreciates. Foreign investors realize as the U. S. currency valuation increases over time, their investments tend to appreciate in value (No doubt there are influential factors such unexpected corporate bad earnings and political bad decisions made by Congress, may offset the benefits of a stronger U.S. Dollar currency investments), versus selling these assets or not purchasing them when the U. S. Dollar devaluates. Furthermore when foreign investors purchase equities, the Dow Jones average is anticipated to climb higher in the future. Also, potentially foreign investors acquire or take - over controlling interests in United States Companies and real estate holdings.

References:

1.) US dollar steadies after 14-month low on euro - http://www.channelnewsasia.com/stories/afp_world_business/view/1011691/1/.html

2.) Gold, silver prices extend gains as dollar slides - http://www.kansascity.com/business/story/1507338.html

3.) Crude oil prices settle higher -

http://www.upi.com/Business_News/2009/10/16/Crude-oil-prices-settle-higher/UPI-55191255702182/

4.) In many ways, dropping dollar is raising U.S. spirits - http://www.miamiherald.com/news/breaking-news/story/1285821.html

5.) US dollar drops as Fed rate rise seen delayed - http://www.theage.com.au/business/action/printArticle?id=132677

6.) Oil reaches $75 on optimism crude demand will improve - http://www.thetrucker.com/News/Stories/2009/10/14/Oilreaches75onoptimismcrudedemandwillimprove.aspx

7.) US dollar falls to 14 - month euro low - http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/10/14/financial/f055234D00.DTL

8.) US Dollar Weakness Sends Oil, Metals Higher as Traders Seek Inflation Hedge -

http://www.dailyfx.com/story/market_alerts/fundamental_alert/US_Dollar_Weakness_Sends_Oil__1255433084403.html

9.) US Dollar Gains Following Bernanke Comments, Unexpected Narrowing of US Trade Deficit -http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/US_Dollar_Gains_Following_Bernanke_1255123763076.html

10.) US new jobless claims dip - http://news.yahoo.com/s/afp/20091015/pl_afp/useconomyunemployment_20091015135742

11.) 30,000 Stimulus Jobs, Many in D.C. Area, Reported - http://www.washingtonpost.com/wp-dyn/content/article/2009/10/15/AR2009101503796.html?wprss=rss_business/government

12.) Australian, N. Z. Dollars Rise a Second Week on Rate Speculation - http://www.bloomberg.com/apps/news?pid=20601081&sid=av2XESnqHyOg

13.) ECONOMIC GOOD NEWS - Increasing good signs with a caution - http://economicgoodnews.blogspot.com/

14.) U.S. Budget Deficit May Drop to $325 Bln This Year, Agency Says - http://www.bloomberg.com/apps/news?pid=10000103&sid=aWHbMYS3rEvY&refer=us