The Falling Dollar versus the Euro and the Price of Gold
Chart of the Week for March 7-13, 2008
The U.S. Dollar has fallen in value against several major world currencies over the last year. For example against the Euro, the U.S. Dollar is down 14% as one U.S. Dollar can only buy 0.66 Euros as of March 5, 2008 which is down from 0.76 Euros on March 6, 2007. The fall of the U.S. Dollar coincided with a rise in the price in Gold as illustrated in the chart above. The price of Gold has risen 51% to $978 per ounce in the last year. Recent U.S. Federal Reserve interest rate cuts appear to have weakened the dollar against foreign currencies such as the Euro, while global inflationary expectations and economic uncertainty may have strengthened tangible assets such as Gold.
The falling U.S. dollar is both good and bad news for the U.S. The bad news is imported goods, like oil, become more expensive for U.S. consumers. The good news is that this decline provides a boost to the corporate earnings of U.S. based multinationals and should benefit U.S. exporting firms as U.S. products will be less expensive in terms of local currencies. Globally, rising gold prices may signal waning investor confidence in global economic conditions.
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