Sunday 30 March 1997
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
auctionThe first 23 lots have now gone. But there are 22 more still up for grabs
healthJames Bond's alcohol consumption puts him at 'high risk' of cirrhosis, tremors... and impotence
musicPolice chief rejects rappers' claims that his work is as dangerous as law enforcement or military service
comedy'Fresh Meat' star sees off stiff competition from Alan Carr, David Mitchell, Graham Norton, Lee Mack and Sarah Millican to win top prize
tvSpoiler alert: Find out the result of a heated final show
Beatles rush out 'bootleg' album to defy EU copyright law
Harvey Weinstein reveals his secret weapon on-set
Now that an oil trader's drinking has got him sacked, will we all have to make do with an afternoon latte?
Chiwetel Ejiofor and Idris Elba get nods for Best Actor, which no black Brit has ever won
Geoffrey Macnab reviews The Desolation of Smaug - the meat in Peter Jackson's Hobbit sandwich
peopleWhat advice would David Cameron give to his younger self?
Mystery of Epping Forest 'big cat' is solved
French café starts charging extra to rude customers
Scientist create 'robotic sperm' to help with fertilisation and drug delivery
Australia incest case: Severely deformed children found in remote farming community after generations of inbreeding
Fox News presenter tells viewers it is a 'fact' that both Jesus and Santa Claus are white
- 1 French café starts charging extra to rude customers
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 3 Australia incest case: Severely deformed children found in remote farming community after generations of inbreeding
- 4 Physicists discover 'clearest evidence yet' that the Universe is a hologram
- 5 Fox News presenter tells viewers it is a 'fact' that both Jesus and Santa Claus are white
- < Previous
- Next >
iJobs Money & Business
£30000 - £45000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Pre-Sales / Cl...
£40000 - £60000 per annum + Bonus + Benefits: Harrington Starr: Regulatory Man...
£40000 per annum: Harrington Starr: Senior Network Engineer (CCNP, CCIE, Netwo...