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Archive for Friday, October 15, 2010

Dollar keeps falling as investors await Fed action

October 15, 2010

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— The dollar keeps falling around the world, tumbling against other major currencies because investors expect the Federal Reserve to pump more money into the economy next month to try to stimulate growth.

The effects can be seen almost everywhere.

Since late summer, when Chairman Ben Bernanke first hinted that the Fed was ready to act, anticipation of the move has rippled across the economy: Stock prices have surged. So have oil prices. Commodities like gold, silver and corn have risen. Treasury yields have slid. Mortgage rates have sunk, too, along with yields on money markets and CD accounts.

The steep decline has even raised worries of a global currency war in which nations would compete to keep their currencies from rising in value as the dollar sags.

On Thursday, the dollar fell to a 15-year-low against the yen in Tokyo, after flirting with a post-World War II bottom. It also touched its lowest level against the euro since January. The dollar has slid more than 10 percent against the euro in the past three months.

What does all this mean for American consumers and businesses?

For one, imports can cost more. So does travel abroad. Goods from U.S. companies become cheaper for foreigners, and oil tends to cost more. Even the likelihood of some new price bubble in investments such as stocks or real estate could rise.

When you total it all up, the U.S. economy is so weak right now that the Fed considers a cheaper dollar to be a good thing. That’s especially true when a low dollar is accompanied by super-low interest rates.

Those cheaper rates, on mortgages, corporate debt and other loans, could help rejuvenate the economy. Consumers and businesses are more likely to borrow and spend — at least those who can afford to or who qualify for credit. The idea is that higher spending would course through the economy, boosting corporate revenue, creating jobs and driving down unemployment.

“The weaker dollar should give the United States more growth and more inflation at a time when the country is struggling with low growth and low inflation,” said Paul Dales, senior U.S. economist at Capital Economics. “It could be just what the doctor ordered.”

The Fed is widely expected at its Nov. 2-3 meeting to launch a program to buy more government bonds. By doing so, the Fed would be injecting billions of dollars into the economy.

Other notable business news:

• In grim news for video game companies, market researcher NPD Group said Thursday U.S. retail sales of game hardware, software and accessories fell 8 percent in September to $1.2 billion. Game hardware sales tumbled 19 percent to $383 million as fewer people bought Wii and PlayStation 3 consoles. Only the Xbox 360 sold more units during the month than it did the same time a year ago.

• Google Inc.’s third-quarter earnings demonstrated that the Internet search leader is capable of surpassing investors’ short-term expectations while still investing heavily in long-range projects. Google reported a 32 percent jump in net income Thursday.

Comments

kansasmutt 4 years, 2 months ago

This is not a good thing, this is bad news boys and girls.

A weak dollar now points towards bad times, not growth !!!! When our dollars sinks, the others will follow and buying stops worldwide.

Stocks will start dropping now and the bottom could fall out.

avoice 4 years, 2 months ago

You are right. Not enough attention is generally paid to the strength/weakness of the dollar. For those wise enough to be tracking this, we should recall that the dollar was sinking for quite a while in the months leading up to the banking/investing crisis that triggered the recent recession.

just_another_bozo_on_this_bus 4 years, 2 months ago

Obama has actually done a reasonably good job of propping up the economic house of cards-- but it's still a house of cards, and nothing the Republicans are likely to do will change that. But keep clicking your heels and chanting your incantations. I'm sure the upcoming elections will give you a few days to rejoice.

Sadly, the teapartiers are completely clueless and helpless at making anything any better, and they probably will never figure that out.

just_another_bozo_on_this_bus 4 years, 2 months ago

That was a truly elegant exercise in irrelevance, corky.

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