Weak Dollar Benefits Many Export Companies

The US dollar still has not shown any signs of recovery as it remains around record lows against the Euro and the Japanese Yen. Many investors are speculating that the US dollar could continue to fall to lower levels as growth prospects for the US is meek, and the Organization for Economic Cooperation and Development estimate about $300 billion in total losses from the subprime mortgage foreclosures. Many investors also expect the Federal Reserve to continue lowering interest rates on the heels of weaker growth forecasts.  Former Federal Reserve Chairman Alan Greenspan had expressed his concerns and warned policy makers to keep a watchful eye on the weakening US dollar as it may fuel inflation, and declared the plunge in the subprime mortgage market to be over because it ``went to zero and cannot go any further,'' Greenspan said today at a conference in Oslo, Norway.

Many banks are ready and willing to get involved in reviving the credit markets by the implementation of what they call a ‘superfund,’ which is a plan to create a fund of about $75 to $100 billion which will act as a potential buyer of  assets from structured investment vehicles. However, since structured investment vehicles are off-balance sheet entities, concerns have arose due to the lack of liquidity in the credit markets.

Crude oil had declined for a two consecutive days as signals show the US economy to be slowing down, which will ultimately cause the demand for fuel to falter in the US. Investors forecast oil prices to drop next week as the demand for crude oil is being hindered by its record-high prices. As high oil prices and the weakening US dollar are becoming a concern for investors, gold reached $800/oz this week, and investors speculate that gold may go as high as $900/oz in the near future. Gold is gaining strength as it rose 28 percent this year, which is the highest annual gain since 1979, and is expected for an even greater growth as demand from investors are pushing prices higher.

The Dow Jones Industrial Average bounced back after a sell off on Wednesday, and many investors are keeping a keen on retailers as ‘Black Friday’ sales kick off the shopping spree for the holiday season. Big retailers, such as Wal-Mart, Best Buy, and Home Depot, have seen a leap in their stock prices, and ‘Black Friday,’ which is also noted to be the day that retailers become profitable for the year, is expecting 132.9 million American shoppers to hit the stores, and estimate about 55.1 million shoppers to purchase goods according to a survey conducted by the Nation Retail Federation.

Not all is lost from the depreciating US dollar as many exporting companies are enjoying the increased sales of their exports, and have seen a surge in foreign demand as the US dollar continues to falter. Firms such as International Business Machine Corp. have been enjoying the current situation of the US dollar, and stated that Europe accounts for around one quarter of its net sales. The Commerce Department noted that exports are reaching new records in each of the last seven months, and have said it to be the longest pitch since 2000. Some investors speculate that foreign companies may look to the US as a base for production, and forecast a shift in production rates as US goods become increasingly cheaper for foreigners.  This comes in stark contrast to Airbus who said today that the weak dollar is “life threatening.”

DailyFX

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