Where Does the U.S. Dollar Go From Here?

The U.S. Dollar increase during the second half of 2008, which lost value to only the Japanese Yen and Swiss Franc amongst the major G-10 currencies for all of 2008, in our opinion, had less to do with the positive economic prospects of the U.S. and more to do the negative economic prospects for the rest of the world as international economies are still catching-up to the U.S. on the global recession scoreboard.

However, with the Federal Funds rate at or near zero, U.S. Treasuries trading at record low yields and a ballooning U.S. budget deficit that gets further increased with each new bailout-related package, prospects for additional U.S. dollar strengthening become difficult, at least in the early parts of 2009. On the other hand, as other international economies follow the U.S. lead of lowering their respective interest rates and when the U.S. economy does start to pick-up speed again, expect the U.S. dollar to show signs of strength and dominance again in the foreign exchange markets.

The value of the U.S. dollar is an important factor for all investors to consider. While a strong U.S. Dollar helps U.S. consumers, especially during these difficult economic times, with their purchases of imported foreign goods, it hurts multi-national U.S. companies attempting to sell their goods abroad (i.e. exports). Recognizing that this is a global credit crisis, the U.S. needs the rest of the world to participate in recovering from this deep and widespread recession. As a result, at this time, the value of the U.S. dollar can be viewed as being as significant as open and appropriate international trade policies.