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Thursday, 24 January 2008 |
The Dollar should be getting weaker as Wall Street has an up day.
The American Greenback is holding steady against the major currencies as Wall Street fluctuates daily. In a move that surprised many seasoned observers, the announced lowering of interest rates in Washington has not caused a major sell- off of dollars in Europe despite the fact that interest rates are higher on the continent. This means that what should be happening is not materializing. Economic theory dictates that dollars should have been borrowed from American banks at a reduced interest rate and deposited into European banks which are paying higher interest rates. This should have brought the price of the dollar down as massive amounts of Dollars are sold. However, this hasn’t happened. Some insiders believe this did not happen because investors are afraid that European banks will lower interest rates themselves for the same reason the US has. This would render their borrowing dollars and depositing Euros virtually meaningless. They would do this to make more money available by increasing spending and jump start the sluggish economy. This economists say would prevent a recession.
If that would happen then the new currency that investors wish to buy would also devalue defeating the entire purpose of the exchange.
All this makes American products and American markets very attractive to foreign investors and may pump up Wall Street. Foreign investors may pick up real buys on undervalued stock at very cheap prices because of the Dollar's weakness |
