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Dollar up, dollar down – end of pattern?

Winston Churchill once joked that democracy is the worst form of government – until you consider the alternatives.

That statement might easily apply to the U.S. dollar. To read many online posts it is the worst of currencies. But what are the alternatives?

Anyone who owned Venezuelan bolivars got a 50 percent haircut overnight this week. Its exchange rate versus the dollar has been fixed for years. Surprise.

Argentina’s peso has been in slow decline versus the dollar even as the dollar was declining against other stronger currencies.

The British pound dropped by 20 percent against the dollar as the financial crisis unfolded and has stayed down.

Even the Chinese currency was absolutely fixed to the dollar all through 2009. For a strong country that is supposedly concerned about the mistakes of the United States, that is curious behavior.

My point isn’t that all is hunky-dory. It isn’t. Readers can point to the euro, which rose a tad against the dollar in 2009, or to the Australian and Canadian dollars which rose much more on the back of rising commodity prices.

Is the dollar weakness permanent or just a temporary illness? That diagnosis will inform market decisions all year long.

The dollar has come back before. It was under attack in the late 1960s and then again in the late 1970s. In the middle 1980s it was considered so strong that it had to be deliberately weakened to save U.S. export industries. This occurred again in the early 2000s.

Will the pendulum swing again?

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2 Responses to Dollar up, dollar down – end of pattern?

  1. Jerome Curtis Watts says:

    I’m not all that smart and I don’t have all the answers; but I read an opinion (maybe 10 years ago) about a "race to the bottom". That opinion was trying to describe a situation where each county would try to devalue their currency in order to get a favorable export advantage. So maybe the US Dollar will look like it is moving up…but the purchasing power of the Dollar will still be declining. So I might suggest that looking at the dollar index is not "the whole answer" to the question of how the dollar is doing. Got gold?

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