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Published: September 17, 2009
When everyone agrees on something, it's much
more likely that everyone is wrong than everyone is right.
Universal consensus about the end of the dollar makes me think
it won't happen.
Several things move currencies: Economics, interest rates and
politics. I'm going to show you why each of these areas points
to a rising dollar than a falling one.
Economics
Several economic factors affect the value of a currency,
including unemployment and growth in a country's gross domestic
product, or GDP. The U.S. is much more likely to improve in
these areas in the next 12 months than it is to worsen.
Unemployment is about 9.7%. The only time unemployment has been
this high in the past 50 years was for a one-year period from
mid-1982 to mid-1983 -- after which the joblessness rate fell
rapidly.
The quarterly GDP growth rate in the U.S. has been negative for
about a year. This period of negative growth has been longer
than recent declines, but it is showing signs of abating.
The most recently ended quarter showed a stark improvement from
previous quarters, and most forecasters expect positive growth
to kick in before the end of the year.
Interest Rates
When interest rates are high, the dollar becomes more attractive
because people want to take advantage of those rates. When rates
are low, investors seek to move to currencies that pay a higher
rate.
U.S. interest rates are at all-time lows and have nowhere to go
but up. The last time rates were anywhere close to this
extraordinarily low level was in 1954, when rates spent a few
months below the 1% mark. Now, saying rates have to go up isn't
much of a prediction. After all, they simply can't go much
lower.
Periods of low rates are
typically followed by periods of
high rates. Some cite Japan as an
example of rates hovering at low
rates for an extended length of
time. But the United States is not
Japan, and our financial history
suggests rates will soon rise as the
U.S. economy recovers.
Political Factors
Political factors can go a long way
toward eroding the value of a
currency in a developing country.
But the U.S. government is as stable
and safe as a country gets. While
events here and abroad can strike
fear into the hearts of investors,
any such panic is usually
short-lived. Even the two wars the
U.S. now fights don't enter the
minds of investors other than
concern about how much the U.S. is
spending on them. While crisis can
strike at any time, the U.S. is
prepared to meet any challenge, and
any difficulty is likely to present,
at worst, a short-term blip in the
value of the dollar.
The U.S. Dollar Is Likely to
Appreciate Going Forward
Most of the factors that push the
dollar lower are near their bottoms
and seem poised for good news. The
"dollar index" points to the same
conclusion. It's at a historical
low.
The dollar will experience
volatility during the next several
months, but I'm convinced the dollar
will be stronger 12 months from now
than it is today. The herd is
betting against the dollar. I'm
looking to go against the crowd with
PowerShares DB US Dollar Index
Bullish (NYSE: UUP), an ETF that is
designed to go up when the dollar
appreciates against a basket of
global currencies.
-- Anthony Haddad
Staff Writer
StreetAuthority.com |
