Tags: Dollar | rises | Fed | war

Dollar Strengthens Despite Fed Easing, Talk of Currency War

Saturday, 16 Mar 2013 05:17 PM

By Dan Weil

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The dollar has scored hefty gains since the beginning of February, even as the Federal Reserve sustains its massive easing program and talk intensifies of a currency war.

Investors’ sunny view of the U.S. economy is what’s pushing the greenback upward, according to The Wall Street Journal.

That sounds a bit fishy, given that the consensus forecast for U.S. economic growth this year is only about 2 percent. And the automatic spending cuts might trim even that modest estimate.

But that would still be better than Japan and Europe, The Journal story points out.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

The International Monetary Fund predicts growth of only 1.2 percent in Japan and 1 percent in the United Kingdom this year. And it sees a 0.2 percent contraction in the euro zone.

The Dollar Index, which measures the greenback’s strength against six major currencies, has jumped 4.6 percent since Feb. 1 and stands near a 2 ½-year high.

A rising dollar is good for U.S. imports, bad for U.S. exports, and good for U.S. citizens traveling abroad. It’s good for imports, because it means lower prices in dollar terms. And it’s bad for exports, because it means higher prices in foreign currency terms.

It’s good for U.S. tourists, because they can now buy more foreign currency for the same amount of dollars.

As for the foreign exchange market’s view toward the U.S. currency, "It is all about broad dollar strength," Peter Kinsella, a currency strategist at Commerzbank, tells Reuters. “We have seen a breakdown in the correlation that good U.S. data is bad for the dollar."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown


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