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
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 Frank Lampard's face drops when Holly Willoughby introduces him as a 'Man City legend'
- 3 UK weather: Britain braced for snow as arctic air mass moves in
- 5 General Election 2015: Stephen Hawking says he will vote Labour
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
Andrew Lloyd Webber: Phantom of the Opera writer mocked after issuing a warning about Ed Miliband and Nicola Sturgeon
General election 2015: Labour will toughen hate crimes legislation surrounding Islamophobia
HSBC review into moving headquarters from UK 'underway'
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...