How low can the dollar go?

Filan

Would now be a good time to buy?. What do others think?

Thanks
Alan

Hanley

I was actually looking for that info today... The euro seems to hav been consistently getting stronger against it since Jan '06

http://finance.yahoo.com/currency/convert?from=EUR&to=USD&amt=1&t=5y

I'm guessing there's ALOT of factors acting on this, particularly in hte last few months. But this has the makings of an interesting discussion!!

Beelzebub

Are you speculating or are you going on a trip?

Filan

Potentialy speculating...surely the dollar will eventualy rise again against the Euro...and if it does then the time to buy would be when it's at it's lowest.... Is this solid logic?.... Heard on Today Fm that it could drop for several months to come....

Hanley

I think I've seen predictions of a high point €1 = $1.80 around, so it might be worth waiting around for a while if that's the case.

portomar

all these "few months drop" and € at $1.80 predictions should be taken with a table spoon of salt. no-one knows and if they did they would be a rich man. in a general way, of course you can take a view though. be careful not to think about exchange rates in the same terms as say crude oil or AIB. the dollar dropping doesn't exactly translate as a general negative on the economy, though this can be a factor. essentially, the biggest factor in exchange rates (im open to correctio on this) is interest rates. at the moment, money markets are counting in a drop in eurozone interest rates this year (the method used for this i only half undestand and wont go into here). i believe they are incorrect, because the ecb has no mandate for economic growth, (while us fed has dual mandate, growth and inflation) therefore they wont cut because of slack growth, but because of inflation below 2 percent, its currently at around 3 by their measure. essentially, if the ecb cuts rates, it increases the supply of euro, making it cheaper v. dollar. the federal reserve is on a path of rate cuts, and so, i believe, will continue the decline.

you see from above the complicated nature of currency bets, as i spend a lot of time thinking about the ecb rather than the fed, because its a binary bet. the dollar has no rightful place at parity with euro, just like the pound has no rightful place at 1.35 or any other currency at any other rate. incidentally, EADS, maker of airbus, is breaking ground this year on a massive plant in alabama, the first EADS plant outside europe i believe? its a big decision, and a strategic one. these big players seem to be betting on a continuing weak dollar.

one reason i think trichet wont cut: on of his famous quotes from frances central bank back in the day:

"whats unemployment got to do with me?"

A Random Walk

portomar wrote: »

incidentally, EADS, maker of airbus, is breaking ground this year on a massive plant in alabama, the first EADS plant outside europe i believe? its a big decision, and a strategic one. these big players seem to be betting on a continuing weak dollar.

As an aside, this is primarily in response to their winning the US airforce refueling plane contract. I doubt the plant would have been built otherwise and I don't think the dollar/euro rate really mattered.

portomar

im aware of the contract they just landed, and concur that they probably wouldn't build it without it. what i was trying to get across is that they are deciding to build a plant in dollar area, where their costs will be dollar. this shows one of two things

a view from the company that euro will strenthen/stay strong against dollar

or, they feel more secure manafacturing in the currency they are selling in. incidentally, i think any company who bases a business plan on currency is insane. heard one of the big german car companies, possibly volkswagen, have been hedging dollar to €1.50 for years.

Minder

Filan wrote: »

Would now be a good time to buy?. What do others think?

Thanks
Alan

I am intrigued by your question. Do you believe that the dollar has bottomed in its 23 year decline? Or are you simply looking for a bounce in the current slide? Are you only looking at the exchange rate between the dollar and euro, or the fundamental value of the currency?

Some of this information may help you in seeing the fundamental problem with the value of the dollar.

Dollar Index

M3 Money Supply

Comptroller General warnings

Monetary Inflation

M3 money supply series - discontinued

From here : Consider this data:

Money supply growth has gone parabolic. It took us from 1620 until 1974 to create the first $1 trillion of US money stock. Every road, factory, bridge, school, factory, and house built, every unit of economic transaction that ever took place over those first 350 years required the creation of $1 trillion in money stock. But it only took 10 months to create the most recent $1 trillion and I don't recall seeing an entire continent's worth of factories, schools or bridges built during that time.

Household debt has doubled in only 6 years. Think about that for a minute.
Total credit market debt (that's everything) was about $5 trillion in 1975, has increased by $5 trillion in just 2 years, and now stands at over $51 trillion.
The wealth gap between the super-wealthy and everybody else is widening at a furious pace.

Current Rate of Growth in the Money Supply

US National Debt Clock

A chronology tracing the life of the Glass-Steagall Act

.... and the fact that gold (priced in dollars) has gone from $250 an ounce to just shy of $1000 an ounce is not merely an interesting sideshow.

A Random Walk

portomar wrote: »

this shows one of two things

a view from the company that euro will strenthen/stay strong against dollar

or, they feel more secure manafacturing in the currency they are selling in.

It's because US military contracts require a certain percentage (I think around 60%) of contract value to be spent in the US, so they have to build an assembly plant in the US. Whether or not they think the dollar will fall or rise is irrelevant

Mikel

Minder wrote:

... and the fact that gold (priced in dollars) has gone from $250 an ounce to just shy of $1000 an ounce is not merely an interesting sideshow.

It never fails to amaze me how obsessed people are with the irrelevancy that is gold. It is a purely speculative instrument, converting the price of anything into it's price in gold is complete nonsense

daveirl

This post has been deleted.

Minder

Mikel wrote: »

It is a purely speculative instrument

How so? Gold has been a traditional store of wealth for thousands of years - and is often considered a barometer to the health of an economy.

Why do you believe it's price to be irrelevant?

Mikel

Minder wrote: »

How so? Gold has been a traditional store of wealth for thousands of years - and is often considered a barometer to the health of an economy.
Why do you believe it's price to be irrelevant?

Who considers it to be a barometer of the health of an economy?
Like I say it's purely speculative, it's gone up because people think it's going up.

DJDC

It never fails to amaze me how obsessed people are with the irrelevancy that is gold. It is a purely speculative instrument, converting the price of anything into it's price in gold is complete nonsense

Rubbish, gold is THE most important asset used to hedge against inflationary pressures and a weak dollar. If US investors feel that the dollar will weaken, they hedge their currency risk by going long on gold forwards or futures.Its seen as a store of value against floating currencies.

A Random Walk

DJDC wrote: »

Rubbish, gold is THE most important asset used to hedge against inflationary pressures and a weak dollar. If US investors feel that the dollar will weaken, they hedge their currency risk by going long on gold forwards or futures.Its seen as a store of value against floating currencies.

Like he said - it's a speculative asset. It has some industrial value, but much of its value is speculative. Contrast with other commodities, wheat, tin, lead, oil which have a value because there is a demand for them to be used for something. Diamonds are a good example of an almost entirely speculative asset with little industrial use.

Personally I wouldn't touch gold because I haven't a clue how I'm supposed to value peoples expectations. I can value wheat because I know how much people eat, how much is produced and what the difference is.

DJDC

Like he said - it's a speculative asset. It has some industrial value, but much of its value is speculative. Contrast with other commodities, wheat, tin, lead, oil which have a value because there is a demand for them to be used for something. Diamonds are a good example of an almost entirely speculative asset with little industrial use.

Personally I wouldn't touch gold because I haven't a clue how I'm supposed to value peoples expectations. I can value wheat because I know how much people eat, how much is produced and what the difference is.

You are mistaking a speculative asset for an investment asset.Investment assets can be used for 3 purposes in trading:
1) Speculation
2) Hedging
3) Arbitraging

Commodity assets are those used purely for utility purposes. The assets you mentioned are mainly commodity assets but can also be used as an investment asset. I doubt all those HF's really wanted tonnes of wheat for their familes when they went long on the recent price surge.

My point is that he described gold as a purely speculative asset. Thats wrong, its purely an investment asset which is used mostly for hedging not speculative purposes.

Maybe we are just mixing up terminology.Anyway Im off to the pub.

Mikel

Rubbish, gold is THE most important asset used to hedge against inflationary pressures and a weak dollar.

That doesn't contradict what I said. If you want to speculate on those things you can use gold

if US investors feel that the dollar will weaken, they hedge their currency risk by going long on gold forwards or futures

Really? or would they use currency futures/options? Which would be more effective?

It has no intrinsic value. Hence the bulk of the recent inflows are speculative. Hence a speculative asset.
Do you really thing company treasurers are hedging their P&L or balance sheet with gold.

its purely an investment asset which is used mostly for hedging not speculative purposes.

I doubt it, something like 99% of the fx market is speculative, most of commodities too, can't imagine gold is an exception

The assets you mentioned are mainly commodity assets but can also be used as an investment asset

so is a 'commodity asset' not an 'investment asset'
I think you're confused

aliqueenb

so would now be good to buy stuff online or would it be better wait like will it drop much further?

xebec

I don't have much to add to this discussion, apart from the fact that I too believe that gold is purely a speculative investment. It only has value because people believe it has value.

Anyone want a good explanation of the "value" of gold? Read Terry Pratchett's latest novel Making Money, once you get around the satire involved it is actually a very well thought out and succint explanation of the value of gold and how markets work.

Now, back to the dollar...

aliqueenb

xebec wrote: »

Now, back to the dollar...

yes back to the dollar:D wanna answer my question!?

Minder

DJDC wrote: »

Rubbish, gold is THE most important asset used to hedge against inflationary pressures and a weak dollar.

Mikel wrote: »

That doesn't contradict what I said. If you want to speculate on those things you can use gold

The point I made in the first place was that the huge increase in the price of gold was not just an interesting sideshow - raging ($) gold prices are indicative of fundamental problems with the value of the dollar. You seem to be agreeing.

electric69

Its going to hit $1.56 anyway.Cant really see it going any lower. As soon as bush is gone normality will be restored.

mike65

Its not a political issue its a debt issue.

Mike.

A Random Walk

Too many variables feed into an exchange rate to get anything other than guessing on a forum like this. Only a mug tries to out-predict the FX market.

Filan

I never felt that I could necessarily out predict any market...But I am prepared to take chances with some small segments of my savings...at worst there won't be much money lost....a currency will always hold some value....a currency can't collapse....and there is the possibility of appreciation...only a possibility...but I'm prepared to take that risk.

failsafe

Minder wrote: »

Money supply growth has gone parabolic. It took us from 1620 until 1974 to create the first $1 trillion of US money stock. Every road, factory, bridge, school, factory, and house built, every unit of economic transaction that ever took place over those first 350 years required the creation of $1 trillion in money stock. But it only took 10 months to create the most recent $1 trillion and I don't recall seeing an entire continent's worth of factories, schools or bridges built during that time.

That's just because the dollar came off the gold standard around that time. Pre/post gold standard comparisons like that can be very misleading.

In terms of the dollar, i would personally feel like (for us) it could get cheaper. With the US Fed seeming somewhat confused and torn as other posters have mentioned, and cutting interest with what seems to be political motives, coupled with the opposite sentiments coming from the ECB, my gut would tell me that the dollar might have a bit more to slide.

Having said that, the Euro is very pricey these days, and with the way world markets are these days, it doesn't take too much bad news (often just an absence of great news) to send something tumbling, so I'd be worried that an overpriced Euro could take a dive if something unexpected comes out of Brussels (or wherever the ECB sit!) over the next 6 months.

As others have mentioned, you'd have to be a genius/supercomputer/from the future/insane to accurately predict a system as complex as this, and so I wouldn't have the confidence to make a speculative buy on dollars myself. But I'm definitely enjoying internet shopping while the going's good, and looking forward to my "50% off" sale that I'll get on everything on my summer holidays!!

aliqueenb

its $1.54169 now! :] time for some serious shopping!

Minder

electric69 wrote: »

As soon as bush is gone normality will be restored.

Bush/Clinton/McCain/Obama - none of them will make the choices that will change the problems with the dollar. Even if they did, it will take generations to reverse the damage. If you want to see a campaigner address the dollar issues, look up Ron Paul - watch some of the exchanges between RP and other candidates, plenty on youtube.

Filan wrote: »

a currency will always hold some value....a currency can't collapse

I hear Zimbabwe dollars are cheap at the moment. 100,000% inflation. Black market exchange rates at 25m Zim dollars to 1 US $. You wouldn't call that a collapse?

Tiesto

i actually gotta buy some dollars for my holiday..
any idea where i will get the cheapest price

Thanks

Killme00

Filan wrote: »

a currency will always hold some value....a currency can't collapse

Argentina, Brazil, turkey, Russia and Eastern Europe post Soviet Union etc..it can and has happened. I agree that it wont happen to the dollar though, there is too mcuh riding on it, China and the middle east in particular.

mike65 wrote: »

Its not ENTIRELY a political issue, its a debt issue.

FYP The plan of the current and future president on how to deal with the economy will have some bearing on the exchange rate. The potential feelgood factor of an Obama presidency could spark renewed spening and life into the US economy, on the other hand the opposite is also true.

However you are correct that debt is the overriding factor and you can see the shareprice of the major US lending banks took a major hit yesterday. The may be more hits to come from the subprime lending as you can see option traders and lumping into bear stearns.

damnyanks

Korean won is where its at these days

Minder

In a period of 3 trading days The Federal Reserve has taken the unprecedented step of making available to a wide range of banks, a $400b loan facility to help with the liquidity crisis. The collateral has been broadened to any of the types of securities — Treasury, agency debt, or agency mortgage-backed securities — that are eligible as collateral in conventional open market operations. The temporary and permanent open market operations are a mechanism by which the Fed controls the money supply. Typically 20 to 40b is available each month. So in three days the Fed has injected the equivalent of a years growth in the money supply into the system. Monetary inflation leads to price inflation. Liquidity injections in the face of rate cuts? how does that work?

FA

The $ will continue to drop as long as the fed continue to cut rates, and as oil is quoted in $ that will follow a similar path.

Rate are in the US are expected to drop a further .75 later in the month - with some are suggesting a 1% cut, which would bring their base Fed rate to 2%.

Considering the ECB rate is currently running at 4%, you can see why the $ has taken a hammering. Rates have dropped by circa 2.5% in the last 6 months, this is in line with the $ decline (and a rise in the price of oil).

In the short term there are a lot of suggestions that you should be shorting the $ and going long on oil (you might have missed the boat on oil its jumped 10% in last 3 weeks).

Bottom on the $ isnt expected until the fed bottom out on rate cuts - and with the way things are going in the states they just might keep going. The have got it in their locker to go below 0 (like they did in japan), that means that you are actually getting paid to borrow!

IrishMike

FA wrote: »

The $ will continue to drop as long as the fed continue to cut rates, and as oil is quoted in $ that will follow a similar path.

Rate are in the US are expected to drop a further .75 later in the month - with some are suggesting a 1% cut, which would bring their base Fed rate to 2%.

Considering the ECB rate is currently running at 4%, you can see why the $ has taken a hammering. Rates have dropped by circa 2.5% in the last 6 months, this is in line with the $ decline (and a rise in the price of oil).

In the short term there are a lot of suggestions that you should be shorting the $ and going long on oil (you might have missed the boat on oil its jumped 10% in last 3 weeks).

Bottom on the $ isnt expected until the fed bottom out on rate cuts - and with the way things are going in the states they just might keep going. The have got it in their locker to go below 0 (like they did in japan), that means that you are actually getting paid to borrow!

Dollar will probably go out as far as 1.70 with the 200bn injection of fed funds
and the fact that they are going to cut again next Tuesday.
A good time to go short on the dollar with paddypowertrader me thinks.
Oil also looks like 120 looking at its technical charts.

Killme00

Dollar at 1.55 at the mo

July

Killme00 wrote: »

Dollar at 1.55 at the mo

Sweet!

I'm going to the U.S. in the first week in April. I know nobody knows for sure what currencies will do but would you kind people recommend that I buy some dollars now or wait closer to the time? (I'm leaning towards waiting)

If I wait, is it the best option to buy some 'pocket money' before I go and use (topped up) credit card over there for purchases and a small amount of cash withdrawals?

Thanks

mike65

Euro/Dollar rate about to hit 1.60

Mike.

Tiesto

If I asked the bank to hold some dollars for me for this thursday, what rate will i get? The rate the day i asked them, or the rate the day I collect it?

Thanks

WoollyRedHat

Didn't know they held money for people?

Euro is at $1.56 again. Is there a possibility that it could hit the $2.00 mark? That would mean you would get amazing value for your money. If it does happen I'm off there straight away.

Tiesto

WoollyRedHat wrote: »

Didn't know they held money for people?

Euro is at $1.56 again. Is there a possibility that it could hit the $2.00 mark? That would mean you would get amazing value for your money. If it does happen I'm off there straight away.

maybe I shouldnt have used the word 'hold'.
I mean for them to reserve some dollars for me to purchase on thursday...

IrishMike

WoollyRedHat wrote: »

Didn't know they held money for people?

Euro is at $1.56 again. Is there a possibility that it could hit the $2.00 mark? That would mean you would get amazing value for your money. If it does happen I'm off there straight away.

There is a possibilty it could hit the $2 but 2 or 3 huge investment banks
would need to go under first.
The easing off of the oil price and the liquidity that the Fed are pumping into
the US markets should ensure the currency doesnt completely collapse.
At the moment the Fed doesnt give a crap about the dollar, it has much
MUCH more important things to worry about and will have for the next few
months.
You will see the dollar hit 1.70 at least in the short term.
If you are looking to make money from that use something like
paddypowertrader rather than buying dollars in the bank.
Gonna be a good few months to buy stuff from the USA

Ste.phen

IrishMike wrote: »

There is a possibilty it could hit the $2 but 2 or 3 huge investment banks
would need to go under first.

What are we at now, 1?

MortgageBroker

buy gold

daveirl

This post has been deleted.

WoollyRedHat

Oh shopping. Sure we'd all be having an epic recession, only let's stock up while the euro is strong so we're more prepared for it!

Really though I just want clothes, I still go to secondary so.

saram

damnyanks wrote: »

Korean won is where its at these days

Can u expand on this point??

Cheers!!

xebec

The dollar has started edging the opposite direction over the last few days, Monday was an all-time low at $1.59 but this afternoon it was trading at around $1.54.

DJDC

buy gold

An agressive play in my opinion at this stage of the commodities surge.

Maskhadov

whenever the markets collapse, gold will hit the floor anyway so gold will be worthless

Mikel

heh

barter will make a comeback