Will the US Dollar Remain Cheap?

September 17th, 2010 posted by admin
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Will the US Dollar Remain Cheap?

The question whether the dollar will remain cheap is integrally related to the question on how will the value of the dollar and the interest rates in the long term respond. Before you contact you [url=http://findfinancialadvisors.co.uk/]financial advisor[/url], read a little further. There are high chances the fiscal and the monetary policies of the G7 group of countries will work in tandem to enhance the long term rates when the quantitative easing comes to an end. The tightening of the cycle in the US along with the quantitative easing will definitely work as support forces for the dollar and will also compensate for the negative fiscal consideration of the dollar. Therefore there are high chances the dollar will strengthen in relation to the other currencies.

As far as 2010 is concerned the supply net of the purchases of the Fed will rise. The reason behind this is the end of quantitative easing and ramping up of the supply of the US treasury. As the expectations about the US economy is on the rise there are chances that short terms rates will also increase. Therefore, even if there is a high demand for risk free assets there will be an upward pressure for long term rates in the United States.

Another reason why the dollar is likely to do well is the improvement in the current account deficit of the US. However it needs to be mentioned here the reduction in the balance of global trade can be credited to the cyclic collapse. The contractions in export and import can move the deficit and the surplus nearer to the equilibrium. The dollar path may have to face quite a few challenges. There is every possibility the nations that have less resistance as far as the Central bank is concerned will take steps to strengthen their currencies in relation to the dollar in the coming times.

The dollar will remain cheap for the moment but once the U.S. economy get back on track and confidence in the recovery heightens you should expect the dollar get more expensive.

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