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By DailyFX Updates | September 27, 2007
Here is an excerpt from my special report on DailyFX
Can the US Dollar Fall Further?
The answer is yes. A trend in the currency market can last far longer than many people would otherwise expect. We have seen one way directional moves last for months and in some cases, even years. Interest rate outlooks play a major role in the future direction of currencies so with the market pricing in another 125bp of easing by the end of next year, the US dollar could easily fall to 1.50 against the Euro. This is especially true if the ECB remains nonchalant about the Euro’s move. At some point, the benefits of a weaker dollar such as increased exports and foreign investment will help to turn the
US economy around, at which point the dollar will begin to rise once again.
What Does This Mean for Your Investments?
Regardless of whether you are actively involved in the currency market or monitor it at all, the value of the US dollar or currencies does matter. Companies that do a lot of foreign sales will benefit the most because their foreign currency revenue will be higher when repatriated not because they sold more goods, but because their earnings from currency conversion will be larger. The industries with the greatest foreign sales exposure are energy, technology and consumer staples. Companies that produce commodities usually also benefit from dollar weakness while the companies that will be hurt the most are big importers. If you have a view on where the US dollar is headed or want to hedge against some of your stock market exposure, the purest way to do so would be through trading or investing in the US dollar directly in the currency market.
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Topics: DailyFX.com Updates |
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