Wednesday, November 14, 2007

Is the Dollar set to Rebound?

From The Wall Street Journal:

“Stephen Jen, Morgan Stanley's chief currency economist, says the U.S. currency has gotten ‘grossly undervalued.’ His forecasting model takes into account interest rates, productivity growth, budget deficits and a host of other factors. It's telling him the buck is about 25% lower than it should be against the euro and 21% undervalued against the pound, though it might have further to fall against the yen.”

From China View:

“’We have a strong dollar policy, and it's important for the world to know that,’ he said as the dollar hit record low against other currencies. ‘We also believe it's important for the market to set the value of the dollar relative to other currencies.’

Bush also pointed to strong economic growth, low inflation and low unemployment as factors that should help boost the dollar.”

From CBS News:

“Portfolio manager Stephen Shipman noted recently that the amount of high-powered money being created by the Fed is actually lower today than it was in May, a situation one would think would equate with a strong greenback. Yet despite this fact, the dollar almost daily tests new all-time lows with no end in sight. What to do? Though Treasury secretary Henry Paulson is on record saying markets should set the dollar’s value, this form of ‘benign neglect’ seems a bit wanting given the dollar’s direction. Faced with a falling pound in the 1980s, Margaret Thatcher’s Chancellor of the Exchequer Nigel Lawson communicated to the markets his desire for an exchange rate of one pound to three deutschemarks. The markets matched his desires almost instantaneously. While it’s unrealistic to assume Paulson will seek a direct currency link with the euro, a strongly worded communiqué from the secretary that makes plain his unhappiness with the dollar’s fall will at least give traders a story to support resumed dollar buying. It also could present a way out of what could be a painful inflationary episode.”

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