Tuesday, October 21, 2008

U.S. Dollar in Strongest Showing Against Euro in 20 Months

The U.S. dollar continues to strengthen, as it had its best showing against the euro in 20 months. Much of this is generated from the possibility of a second financial rescue package by the U.S. government, along with talk of a second stimulus package as well.

Commodity prices of responded by continuing to plunge in the short term as the dollar-denominated raw materials continue to struggle, even though underlying fundamentals haven't changed.

Fear will keep this trend going for a time, but as Jim Rogers says, we're now in a "forced liquidation" stage for commodities, but once liquidity comes back to the market, we'll see commodity prices go up again, as demand has only slowed down, but the commodity bull market will now be longer than originally expected because of the financial crisis.

In the short run we'll see the commodity market slow in growth as countries cut back on or put off projects. In the long term we'll see things return to where they've been concerning commodities. We will also see the dollar weaken significantly again in response to the ill-advised bailout that will eventually pummel the dollar and increase inflation from pouring more greenbacks into the economy.

1 comment:

Andy said...

Good article and I agree with the longer term view of a weaker dollar. As I wrote recently, the rapid rise of the US dollar in the near term is a result of the flight to safety to US treasury's due to the global financial meltdown. This just shows despite America's longer term challenges it is still viewed as the financial bastion of the world. Hard to believe with the all the institutional collpases, but in Red, White and Blue we trust.