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More Dollar Woes

Posted By Barry Ritholtz On November 23, 2004 @ 8:58 am In Economy | Comments Disabled


Think the selloff in the US dollar is over? Think again:

Wsj_asia_domino11222004193406_2 [1]"Asia appears to be in the early stages of a regionwide currency revaluation, partly in anticipation that China will let its own currency float higher sometime in the next year.

From Tokyo to Seoul to Singapore, some investors are buying up large volumes of Asian currencies, a strategy that assumes Asian countries will tolerate somewhat stronger currencies in the year ahead. The South Korean won is trading near its highest level against the dollar in seven years, while the Japanese yen is up nearly 7% since the beginning of October.

Investors also are pouring capital into Asia’s equity and bond markets — a bet that appreciating currencies will boost the value of their assets over time. Meanwhile, a number of Asia’s largest companies are drafting strategies to deal with current and anticipated adjustments in Asian currencies, including cutting costs and changing the amount of business they do in dollars."

We are only in the 5th inning or so of this major, global shift — the reverberations of which will be felt for years. (That Alan Greenspan seems to have only  recently discovered this isn’t of consequence).

While the immediate impact on US multi-nationals will be a short term positive, consider the effects of Asian investors finding U.S. fixed income and equities too expensive — due to currency concerns.

I suspect this will end rather badly . . . 

Asia Bets on Stronger Currencies [2]
PATRICK BARTA in Bangkok, Thailand, and ANDREW BROWNE and MARY KISSEL in Hong Kong
THE WALL STREET JOURNAL, November 23, 2004; Page A2

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[1] Image: http://bigpicture.typepad.com/photos/uncategorized/wsj_asia_domino11222004193406_2.gif

[2] Asia Bets on Stronger Currencies : http://online.wsj.com/article/0,,SB110106445465680132,00.html

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