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Topic : The Dollar in Forex Trading
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Capital Markets

 

Is Dollar still the safe option?

Created by : Alok Kumar Singh, Sr. Associate, UBS  | 10 27 2008 15:06:15 +0000
Industry : Investment BankingFunctional Area : Movers & Shakers(Markets)
Keywords : Dollar Option Safe
Activity:  345 views;  last activity : 07 06 2010 20:18:09 +0000

Gambling on the value of the dollar is far from a sure thing. While the value of the US dollar against the euro has been declining steadily over the last few years, recent months have seen that trend accelerate. The prospect of recession and the chaos in the financial markets which prompted the US Federal Reserve to slash interest rates, prompted a significant fall in the dollar. But how do people perceive it to be is the vital question?

  
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This is where people take refuge. The dollar is still a safe-haven currency. Can in it be that a credit crisis in the US is actually good for the dollar?   In good times, the world clamors to buy US financial alchemy.   And in bad times the world clamors to buy US treasuries.   No matter what, the US deficit is financed.  The dollar, along with the yen and swiss franc, seems to have been a popular funding currency.
By Alok Kumar Singh, Sr. Associate, UBS  10 27 2008 15:06:15 +0000
 
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Some people may see the falling dollar as an opportunity. In theory, the value of any investment in the US will be cheaper than it was several months ago. Should the dollar stage a recovery, then the value of that investment will also rise, net of any gains in value that investment may make. In practice, such an investment strategy is not without risk. Since the US economy appears to be entering a period of recession, the real value of an investment in the US may have fallen relative to what it was several months ago, making it less of a bargain than it appears to be. Second, there is no guarantee of the dollar staging a recovery - only indicators that it may do so.

 
By Satish Pandey, Sr. Associate, IL&FS Venture Corporation  10 27 2008 15:07:53 +0000
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Other currencies like the Euro, Canadian dollar, Yen and just about
any other currency one could mention, have suffered big losses against the
greenback. I have heard very few financial commentators or "experts" mention this
fact, let alone comment on the reason for the US $'s relative strength. Even gold, which should be the ultimate, safe refuge has not done well. So with all this in mind, dollar is the parking lot as of now.

 
By Ashim Chowdhury, Associate, ICICI Securities  | 10 27 2008 15:07:39 +0000
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The dollar has fallen for a number of reasons. A long-term decline has been under way for some time now, primarily due to the US current account deficit. In the 1990s, investors piled into the US following the technology boom. Since the bubble burst, the dollar has gone into a process of readjustment. It rose by around 30 per cent in the ’90s and has fallen by 20 per cent since then. In tandem with this long-term adjustment, that short-term factors were accelerating the rate of decline. The US is entering a period of recession. The US Federal Reserve is slashing interest rates, while the European Central Bank is refusing to budge. The decline of the dollar against the euro is particularly significant. So this is the reality now. Now this parking lot is going to change soon.

 

 
By Venkatachalam C V, Sr. Associate, JP MorganChase  | 10 27 2008 15:08:09 +0000
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