December 31, 2003
Dollar continues decline.
The Financial Times
reports that the dollar continued its rapid decline on the last day of the year, falling to $1.26/euro. It's going down at about a penny a day, which is quite a bit. The most rapid decline in history anyway.
The dollar extended its losing streak into the last trading session of the year, falling to $1.26 against the euro for the first time and marking new lows against a wide range of currencies.
The euro climbed to a high of $1.2647 in London trade while sterling made it to $1.7937, a new 11-year high, and the Australian dollar reached a fresh six-year peak at $0.7536. The beleaguered greenback also slid to a new 10-year low against the Canadian dollar at C$1.2842 and made a seven-year low against the Swiss franc at SFr1.211
The latest slide took the dollar's losses against the euro to 17 per cent this year, with a loss of nearly 5 per cent in December alone. Sterling has added 4 per cent against the dollar on the month, up more than 5 cents.
I think it will continue to go down during 2004, reaching at least $2 to the euro sometime during the year. Which would mean its decline will slow down a bit. The current rate of decline of one penny a day would mean a value of $4.91 against the Euro in a year. That seems almost inconceivable. But in fact the rate of decline accelerated during December, especially since Saddam was captured, so who knows what the new year will bring. At a penny a day, it will cross the $2/euro threshold before April.
There doesn't seem to be much that the American government can do about it either. In fact they seem to think it's actually good for the US, which it may be in the short run. It's probably the major reason for the Dow's recent rise despite the lack of any significant economic growth in the US.
The major tool for managing currencies is the interest rate. But the Fed can't raise it very much without endangering the so-called recovery in stock prices, and that's extremely unlikely during an election year. The current easy money policies help corporate America in the short term, but at the long term expense of the economy as a whole. And the world markets are starting to realize that. The G7 meets in February so it will probably be the hot topic there. But again, what can they do?
There's
another article in the FT which reviews the changes during this year, and points out that a prediction of the current levels would have seemed "outlandish" a year ago. I'm sure my prediction of $2/euro by 2005 also seems "outlandish."
