Ever since the U.S. blasted Saddam Hussein in Desert Storm, the dollar has been climbing.
From Feb. 13 through the end of March the dollar rose a whopping 16.5 percent against the German mark, 15 percent against the Swiss franc, 13.5 percent against the British pound and 9.5 percent against the Japanese yen.While that's good news for U.S. tourists and those Americans who buy imported goods, it could be bad news for U.S. manufacturers wishing to make big gains on exporting our products. However, don't expect it to last.
The dollar's latest rise is only temporary and should not hurt U.S. exports in 1991. Trendy euphoria associated with our military success and the $50 billion or so that our allies will be paying us for military hardware and personnel costs expended in the Middle East are buoying the dollar today.
"The markets overreacted emotionally and pushed the dollar too high. It won't last," said James Annable, chief economist for The First National Bank of Chicago.
"Neither will the massive expense reimbursement for our part in Desert Shield and Storm. Even so, we should actually achieve a short-term surplus in our international current accounts balance (the trade balance plus repayment of debts, interest and investments)."
Annable said to look for the dollar to fall by about 10 percent over the next three months, because nothing much has fundamentally changed since before the Mideast crisis. If the dollar is too strong it will hurt the U.S. economy, which still drives the world's economic engine.
"The G-7 nations (the major industrial nations) want the dollar lower and their central banks and governments will do whatever they can to accomplish this," said Annable.
Even though we are in recovery, our economic slowdown is still very real. That means we need and should get lower interest rates, which will drive the dollar lower.
"Because inflation is not a factor, and won't likely be for at least the rest of this year, the Federal Reserve (our nation's central bank) will allow rates to go lower," said Annable.
This year, it pays to be bullish.
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