Doug Marshall
Market Assessment
Published August 19, 2008

re·val·u·ate / riˈvælyuˌeɪt / ree-val-yoo-eyt:
to increase the legal exchange value of (a nation’s currency) relative to other currencies

In hard times, it’s always encouraging to hear good news.

This week, that good news concerns the almighty dollar, which has taken a beating in recent months, since the sub-prime collapse and the upheaval in markets that many thought were going to result in one of the worst recessions in recent memory.

However, investment bank Goldman Sachs has noted that the dollar appears to be strengthening so well that they have begun re-thinking their 10-year bearish stance on the American currency.

Due to the increasingly poor relative performance of other currencies outside the U.S. and continued stable and stabilizing growth within, the investment bank says that they feel positive about continued long-term growth of the dollar.

The “powerful improvements in the real trade balance suggest the dollar has bottomed” and the investment firm, the largest in the U.S., expects that capital inflows are going to improve and thereby reintroduce confidence in the economy.

While this evaluation sounds very encouraging, the dollar still faces challenges. Volatility in oil prices, the condition of its position in the market, and decreased consumer spending are three factors that could continue to adversely affect it.

But there are many economists and market-watchers now that fully expect that with the continued improvement of the dollar against currencies like the yen and the euro (especially the yen), revaluation of the beloved greenback is likely.

There is always a chance that things will reverse again and we’ll see more losses after this rally. However, the upward trend of the dollar has continued for a little while and, with continued improvement, it is hopeful that this strengthening may be seen as permanent.

This is the good news for the week, then: a stronger dollar means that investors around the world will sleep better after sending money this way.

Sources:
Financial Week.com, August 14