Monday, December 04, 2006

Views on the fall of the dollar. Not all bad.

Bidness: One major deal is the weaker dollar makes exports cheaper overseas.

A dollar decline has been long anticipated, given the parlous state of the US current account. Now, a slowing economy and a suspension of Fed rate hikes seem to have brought the dollar bears truly out to play. A weaker dollar will make US exports cheaper on foreign markets, and so will encourage the global economic rebalancing long sought by the US government to redress the record trade deficit. On the flip side, the eurozone's economy is finally showing signs of life and more rate hikes are expected from the the European Central Bank. But while some eurozone politicians fret over the euro rally's impact on the 12-nation area's exports, the silence in Washington is deafening. David Kotok, chairman of Cumberland Advisors, said that Paulson is playing a delicate game after the Democrats regained control of Congress in elections last month, and as he prepares to visit China in two weeks. "He is trying to balance protectionist pressure on one hand with slow change coming from China and other Asian countries that have large surpluses," Kotok said. "And so we'll see an orderly transition to the global economy, not a meltdown, and the US administration will do nothing to disturb that."

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