A Declining Dollar Gives Opportunity Elsewhere

Many are worried that the US will be a laggard in the world recovery. As a result, investors are heading for foreign opportunities in riskier assets, namely currencies. The dollar is at the lowest it has been in about a year. The decline of the dollar is a result of several things happening in the economy right now.

When economic conditions look harsh, investors turn toward safer assets. We saw the dollar rise earlier in the year against most currencies as the US is considered a safe place to keep money. As economic conditions improve around the world, investors want to invest in advancing markets and gold. Since the US is supposed to lag most economies around the world, investors do not want to keep investing here.

A second reason the dollar is falling is complements of our monetary policy. The Fed has injected billions into the economy by buying up bonds. As investors sell the bonds they had rushed into as we fell into recession, they are putting their money into foreign currency. As the Fed keeps injecting money into the economy, the dollar will be pushed farther down. The G-20 summit made comments about stimulus money still coming out. As long as money keeps being injected into the economy to stimulate spending, it will be hard for the dollar to make a recovery.

Some bright things can be taken away from this. We now know that foreign currencies and commodities, namely the Euro and gold, are good places to invest. As long as the Fed keeps injecting money and keeping interest rates low, the dollar will remain low. On the other side, keeping rates low means that more countries will buy our goods which will hopefully lower our debt. So a declining dollar is not all that bad. As the dollar continues to decline, cash money can be made in foreign currencies and commodities. Make the most of what the economy and financial markets are giving us.