U.S. dollar is 'bucking' downturn

U.S. dollar is 'bucking' downturn

NEW YORK — The stock market is in shambles, credit markets are squeezed and corporate earnings are falling. But one piece of the mangled U.S. economy is making an improbable comeback: The once-almighty dollar.

As the financial meltdown clobbers world economies from South America to Asia, investors desperate for safe assets are plowing money into the battered buck — helping it snap a six-year slide and reclaim its long-held status as a stable asset during rough times.

"The dollar has become the safe-haven play," said Kathy Lien, director of currency research at Global Forex Trading in New York. "It's a pretty monumental move we're seeing."

Trouble is, a resurrected greenback may not be a good thing.

While a stronger dollar makes vacations overseas and commodities like oil cheaper for Americans, it also makes U.S. exports more expensive. That could deepen the U.S. downturn by hurting companies from Boeing Co. to Caterpillar Inc. and Coca-Cola Co. that get an increasingly big chunk of their earnings from overseas.

Still, the dollar's recovery is stunning for a currency that until recently was considered the dog among its main rivals. After reigning supreme as the world's dominant reserve currency for decades, the dollar began a steep decline in 2002, buckling under the weight of costly wars in Iraq and Afghanistan and an economy with an $800 billion annual trade deficit.

Falling U.S. interest rates this year sped up the dollar's decline until it took $1.60 to buy one euro at one point this summer.

Shortly after the euro was introduced in January 2002, it took only 88 cents to buy one euro.

Now, suddenly, the buck looks safe by comparison. The economic pain spawned by the U.S. subprime mess has now crossed the Atlantic, roiling stock markets in Britain, France and Germany and punishing the euro and the pound.

The 15-nation euro this week fell to its lowest level against the dollar since April 2006 while the pound at one point last week lost a staggering 8 cents against the dollar — the biggest intraday move since exchange rates became freely floated in 1971.

The euro traded at $1.2852 in New York late Wednesday, while the British pound traded at $1.6314.

Meanwhile, once-booming emerging economies are also slowing, causing big hedge funds and individual investors to funnel vast sums of money out of countries like Brazil, India and China and into the relatively low-risk dollar.

The stampede into the greenback reflects a "crisis of confidence," Lien said.

While the U.S. economy by no means is showing signs of a recovery, Lien said other countries are "just beginning to feel the magnitude of the global slowdown, whereas the U.S. is maybe three-quarters of the way through."

"What everyone is beginning to realize is that, yes, the U.S. is in trouble. But it's also much further along (in the crisis) and probably closer to stabilizing than Europe and other regions," Lien said.

Share This Story