Friday, May 27, 2005

You know, it just had to happen this way. When my family and I arrived at the end of January we needed about $1.88 to buy a pound. Things got so bad in early March that pound was up to $1.93 and I feared for our bank account. Yet now, less than one week before we leave the UK and return to the States, the dollar decides to put its rally cap on. As I look at Bloomberg today, I see that the USD/GBP exchange rate stands at $1.8256. The dollar hasn't been this strong in the UK for seven months. Figures I'd be spending my four during the dollar doldrums.

And it's not just against the pound that the dollar is rallying. It wasn't long ago that people were predicting a euro worth $1.40 and a dollar worth less than �100. Yet today the euro is at just $1.25 and you need almost �108 to buy a buck. The broad dollar is at its highest point since early November 2004 and seems to have confidently broken upwards out of the range it's traveled in for the last five-and-a-half months.

I must admit that I was a dollar bear symp back in the winter of '04-'05, mainly because I believed long-term structural forces would be stronger than short-term cyclical forces. Clearly the later have carried the day.

For the first quarter of 2005, US non-petroleum imports are growing at a 13.9% clip; total goods exports at only a 10.3% rate. That stronger dollar should keep imports flooding in to the country regardless of the boil coming off the oil markets (for now) considering the personal savings rate for 2005:I is at a near-rock bottom of 0.9% and has been especially weak -- at a mere 0.5% -- over March/April.

Let the contradictions increase!


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