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 Business News | May 2007 
Just How Low Can the US Dollar Go?
 Bo Nielsen - Bloomberg
Anyone who says the US dollar is weak after it fetched a record-low $US1.3681 against the euro and the fewest pence against the pound in 25 years is expressing a euphemism.
The currency may decline at least another 10 per cent by the end of 2008, say Jay Bryson, an economist at Wachovia Corp, and Kenneth Rogoff, former chief economist at the International Monetary Fund.
The dollar has fallen 3.4 per cent in the past two years to a 10-year low, according to a Federal Reserve index that weighs trade with 38 countries including China, Mexico, Canada and countries in Europe. It tumbled 30 per cent in the three years ended 1988.
"Dollar weakness will be broad-based and could last for years," said Mr Bryson, a global economist at Wachovia He previously analysed currencies at the Federal Reserve.
Investors are dumping dollars, lured by higher returns elsewhere.
The US will grow more slowly than Europe for the first time since 2001 and Japan for the first time in 16 years, the IMF forecasts.
The difference in yield between 10-year German bonds and treasuries has shrunk to the smallest since 2004.
The Fed's US Trade Weighted Real Broad Dollar index, a monthly inflation-adjusted gauge of the dollar, has fallen 16 per cent since 2002 to 94.27, near the lowest in 10 years.
Mr Bryson said it may drop 15 per cent by the end of 2008, spurred by a drop of more than 9 per cent against China's yuan. Mr Rogoff expects a 10 per cent decline.
The US will expand 2.2 per cent this year, compared with 2.3 per cent in the euro region and Japan, according to the IMF. The US grew 3.3 per cent in 2006. Growth slowed to an annualised 1.3 per cent last quarter, the slowest in four years. The global economy is growing at its fastest in a quarter century.
"We are in a situation where Europe and Japan are going to outperform for a couple of years," said Mr Rogoff, an economics professor at Harvard University. "There's a depreciation bias in the dollar."
Central banks and investors are helping spur the dollar's drop. US investors bought 43 per cent more foreign stocks and bonds last year than in 2005. |
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