CURRENCIES

Is THE curtain about to come down on the US dollar?

Since the beginning of the year, the dollar has turned in a stellar performance, rising 10 per cent against the mark and 7 per cent against the yen, thanks to strong US growth and expectations of higher American interest rates. But some investors are beginning to wonder how long the show can go on.

"The euphoria for the dollar at the beginning of the year has given way to a more conservative outlook," said Dimitri Balatsos, president of Tesseract, a US money management firm.

Nascent economic recoveries in Germany and Japan could weigh on the dollar, especially if they lead to higher interest rates there.

The dollar's gains may be self-limiting. Its 20 per cent gain against the mark during the past two years has increased the competitiveness of German exporters. "There's a sense that the German economy is coming out of the doldrums," said Richard Koss, currency strategist at money managers MFR Inc. The government forecasts it will expand 2.5 per cent this year. As a result, the Bundesbank isn't expected to lower interest rates further, and that's supporting the mark, Koss said.

In Japan the yen's weakness has led some analysts to forecast an economic rebound after five years of decline. The dollar rose more than 50 per cent against the yen in the past 23 months.

"The weakness of the yen is boosting exports, and a lot of corporate investment is going on in Japan," said Scott Pardee, a senior adviser at Yamaichi International. "Low interest rates will also boost the economy." The Bank of Japan's discount rate is now at a record low of 0.5 per cent, yet faster economic growth could lead the central bank to raise interest rates in the second half of the year, Pardee said.

The rise in Japanese exports will also widen the US trade deficit with Japan, leaving more dollars in the hands of Japanese exporters who often sell dollars for yen when bringing revenue home. The overall US trade gap rose 21.1 per cent to $12.7bn in January.

In recent weeks, the mark has strengthened against other European currencies as doubts have grown over whether the single European currency, scheduled to start on 1 January 1999, will be implemented on time. That strength spilled over into dollar-mark trading as well.

Not everyone agrees that the dollar's run is over. Some traders and investors say the US will maintain its economic and interest-rate advantage over Germany and Japan, which should push the currency higher next quarter. Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence