Dollar’s big slide

Bob Moon Nov 27, 2006

KAI RYSSDAL: It was kind of topsy turvy in the markets today. Stocks were down. Commodities were up almost across the board. Gold, silver — oil as well. But it’s the dollar that’s been getting a lot of attention. It hit a 20-month low this morning. Settled down a bit after that. But investors fear there could be a further fall. And where it stops, as they say, nobody knows. Our senior business correspondent Bob Moon explains.

BOB MOON: Right now, the Euro is acting something like a big vacuum cleaner . . . . It’s sucking up much of the world’s spare change.

With Europe offering a higher interest rate return, the world’s investors are increasingly moving their money into the Euro. What’s making the markets nervous here in the U.S. is exactly how much suction power the European currency will end up having.

One of the biggest concerns stems from Beijing’s strong hints that it will sell some of the dollars China’s central bank now holds in reserve. Not to worry, says Ashraf Laidi, chief currency analyst at CMC Markets. He says the Chinese know the U.S. is their biggest customer, so they’re not about to do anything rash:

ASHRAF LAIDI: They have reduced the dollar portion of their reserves from 85 percent to just a little bit less than 70 percent, and they will continue to do so. But it’s not in their interest to see a speedy decline in the U.S. dollar, so they have to do that in a very orderly manner.

There is a flip side to the dollar’s dilemma: It’s bound to make American goods cheaper overseas. And at Jeffries and Company, chief market strategist Art Hogan says investors need to keep in mind many U.S. companies will benefit:

ART HOGAN: If you’re a multinational, if you produce in dollars and sell in other currencies, then you’re going to receive the windfall. And if you look at the S&P 500 as an index of companies, about a third of them do just that. So I think that, you know, on the whole, if you were to throw the baby out with the bathwater and sell all of the S&P 500 because of the weaker dollar, you’re going to make a mistake.

So far, analysts don’t see the dollar in freefall. And Hogan argues the U.S. economy remains sound, and thus one of the safest places to invest.

In Los Angeles, I’m Bob Moon for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.