Is the U.S. Dollar About To Reverse Course?

For the first time in several years the U.S. dollar has managed to gain value against the world's other major currencies. During the first three months of 2005, the U.S. dollar is up approximately five percent against both the yen and the euro. The gains for the dollar should be considered significant when considering the United States still faces a growing trade imbalance. So far this year, currency traders have shifted their focus from the United States' large trade and current account shortfalls toward the higher rates of returns being offered on U.S. debt. The recent strength shown in the dollar has somewhat shifted sentiment within the financial markets about the future direction of the currency. A Bloomberg survey released earlier this week shows that the major currency traders expect to see dollar weakness resume later in the year, but the sentiment among dollar bears is much weaker than it was at the start of the year.

The strength shown in the U.S. currency thus far in 2005 should prove to be short-lived. The strong Gross Domestic Product (GDP) growth during the past eighteen months will begin to show signs of moving closer to more normal levels over the next couple months. The signs of a slower economic growth will likely cause a shift in sentiment among currency traders toward the more fundamental problems facing the U.S. economy. The United States trade and current account deficits show no signs of retreating anytime soon. In fact, we expect the coming trade figures to show further deterioration in the balance of trade over the next few months. The major industrialized nations outside of the United States continue to experience anemic economic growth. This continues to place further pressure on the U.S. dollar as the United States consumer continues to buy goods produced in Europe, Japan, and China.

While we expect the dollar to resume its gradual fall against most major currencies, the major wildcard in our forecast is of course China. Recent information coming from China's top decision makers indicates the Chinese are in no hurry to adjust the current value of the Yuan-Dollar relationship. Should any talks of a possible revaluation emerge later in the year, the downward pressure on the U.S. dollar would quicken as currency traders would buy the Japanese yen, and other freely traded Asian currencies, that would likely benefit from a revaluation.

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About Mike Fitzpatrick

Mike Fitzpatrick

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Building Wealth by Paying Yourself First

When I look around at all of my friends, and a lot of my family, I see a lot of people living from pay check to pay check, under monetary stress. These same people watch the Calendar for payday like a hawk. Pay their bills, and then open up the spending flood gates, before they know it, they are itching for their next pay check. These same people are the people who don't think they make enough money to build future wealth. They are wrong.

The way I save money, is by paying myself first. I have automatic deductions come out of my bank account on the 15th and 30th of every month, which I put directly into a mutual fund for safe keeping. I take a small portion of my pay check, roughly 10% and put it away. This may not seem like much, but over time it adds up. In addition, with mutual funds you will have the benefit of compound interest on your side. You should EASILY be able to achieve 8% interest on average in a good a mutual fund, often times more. That's $800 a year on $10000!

Once you start, you will be addicted. Watching your funds grow is incredibly addictive and will inspire you to invest a larger percentage as your income rises. If you have debt, put a portion of this percentage towards the debt and a portion into your mutual fund, so you have something positive to reinforce your automatic deductions.

The bottom line is this, if you have the money deducted in advance (and pay yourself first), you won't miss it and you can go ahead and spend what's left of your pay check week in and week out. You will be investing in your future wealth, and your mind will be at ease that you aren't wasting your life in the rat race and never progressing.