Saturday, November 17, 2007

The Dollar is Falling, the Dollar is Falling

Can anything slow the dollar's fall? When the euro was launched, the US dollar-euro ($:e) exchange rate stood at $1.16/e1. At that price, the dollar was undervalued by roughly 10% relative to its purchasing power parity (PPP). Initially, the dollar’s price rose, but since 2002, it has, for the most part, fallen steadily. Every day seems to bring a new low against the euro.

Forex - US dollar falls vs euro after robust EU growth figures. HONG KONG (Thomson Financial) - The US dollar continued to weaken against the euro in afternoon Asian trade Thursday on expectations of stable euro zone interest rates following robust third-quarter economic growth.

Dollar falls but market cautious on risk. NEW YORK, Nov 13 (Reuters) - The dollar fell modestly against most currencies on Tuesday, resuming a long-term decline after a brief respite on Monday as investors anticipated further signs of housing weakness and sluggish consumer spending that could hurt U.S. growth.

When dollar falls, European exporters count their bruises. The euro's rise and dollar's slide are squeezing European exporters' profits or multiplying their losses, prompting layoffs and plant closings. Companies are not only curbing production of goods headed to U.S. buyers but also rethinking the way they do business.

Weak Dollar, Weak Airbus Profits. From costly production snafus to cross-border political tensions, Louis Gallois has had his hands full since being named chief executive of Airbus' parent European Aerospace Defence & Space in July. But now another problem—the relentless fall of the dollar—threatens to eclipse even those troubles. "The main threat we have before us is the U.S. dollar," Gallois told BusinessWeek in an interview on Nov. 16. The dollar's relative weakness against the euro is sapping EADS' financial health, he said, because nearly all its manufacturing is in the euro zone, while 60% of sales are outside of that area, he said. "When the euro rises 10 cents [against the dollar], we lose 1 billion euros" in operating profit. At the same time, Gallois is redoubling efforts to expand EADS operations outside Europe, especially in the rich U.S. defense sector. The company has already teamed up with Northrop Grumman (NOC) to bid on a multibillion-dollar U.S. Air Force refueling tanker contract that could be decided early next year. If EADS wins, the tankers are likely to be built and outfitted in U.S. factories—which means costs would be in dollars rather than euros (BusinessWeek.com, 4/9/07).

In Venezuela, Dollars Still Reign. Ch├ívez sneers at the 18-year-old Scotch whisky and brand new Hummers favored by his cronies', the so called "Bolivarian Bourgeosie", while at the same time he springs for four billion dollars of Russian jet fighters, combat helicopters and Kalashnikov assault rifles. Meanwhile, at "Mercal", the popular supermarket network where scarce basic goods are supposed to be subsidized by oil revenues, a Cuba-like rationing card system is at work. Venezuela has the highest inflation rate in the Americas (20%) and is set to redenominate its currency in January 2008. Given those circumstances, the dollar has become the most sought-after commodity in Venezuela. Last night I walked down to my neighborhood supermarket for a bottle of relatively inexpensive Chilean red wine. As I approached, I ran into an upset and disappointed neighbor of mine. She usually knows when basic goods are about to arrive, so I asked her if she had found milk at the supermarket. "It's all gone now, again,” she said with a grimace, "but I still have some dollars to sell. Interested?" Most of Venezuela’s high-ranking corrupt officials would have declined her bid. They always ask for their payoffs in Euros.

-------Oh my, what does it all mean? The Yves St. Laurent little black cocktail dress may cost more. Airbus will bring manufacturing jobs to USA if the US gives them a contract. And no matter where you go in Latin America the greenback still rules.

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