Dollar hitting new lows-brutu explain

[BuckeyeSoldier]

Brutu or someone else in the could you please give me the basics of how this works? I know it drives me insane cuz it basically means since im in europe im getting paid less. but is this just a matter or the US printing too much money for the amount of gold in our stores? I honestly have no idea how they decide these things so yea...






The dollar fell to fresh nine-year lows in trade-weighted terms on Thursday and gold prices reached a 16-year peak amid concerns over tensions in the Middle East and a renewed belief in the dollar's longer-term decline. <!--startclickprintexclude-->
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<!--endclickprintexclude-->Traders said reports of Yassir Arafat's continuing ill-health were weighing on the dollar. “This spells trouble for the dollar since it could mean protracted US involvement in the region, not just Iraq,” said Kamal Sharma, currencies strategist at Dresdner Kleinwort Wasserstein.

Middle Eastern investors, including central banks, have been active in the market selling dollars over the past two days, according to traders. There has been speculation for some time that investors in the region would seek to diversify their largely dollar-based wealth as the greenback weakened.

“People are not just looking at simply the next few months for the dollar, they're looking more broadly at a decline over the next few years,” said Tony Norfield, global head of currency strategy at ABN Amro.

The greenback's weakness was also attributed to the re-election of President George W. Bush. Since the start of Mr Bush's first term the dollar has fallen 20.8 per cent in trade-weighted terms and observers do not expect a change in dollar policy in his second term.

“Dollar sentiment is dire at the moment,” said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi. “Bush has been given an extremely strong mandate and that raises doubts about his commitment to reduce the budget deficit by half over a five-year period.”

Thursday's selling saw the dollar fall to $1.2886, within 0.4 cents of its February all-time low against the euro. It declined to an eight-year low of SFr1.1854 against the Swiss franc, a 12-year low of C$1.2034 against the Canadian dollar and to within a whisker of a six-month low against the yen.

 

[gbearbuck]

Soldier,

You are asking a very complex question... for starters, currencies are not valued on gold reserve anymore... gold is considered a safe haven when things go sour, the last couple of years have seen gold prices increase due to investors "flight to quality" (increased demand).

The value, or purchasing power, of a currency is what fundamentally determines the exchange rate to other currencies... The exchange rate is simply the price of one currency in relation to another. The dollar could fall and the Euro could fall (however if the dollar fell more then it would shrink when compaired to the Euro). Exchange rates are a comparison (heck the two currencies independantly could rise, however if one rose more than the other, the one that increased less would decline when compaired to the other). Interest rates, the unemployment rate, and geopolitical events can all have an impact on a countries currency. Remember the economic model of supply and demand. If supply increases prices decrease (or the dollar in this sense), if Demand decreases then prices decrease (or the dollar in this sense).

A falling dollar isn't a bad thing. A gradual descent of the dollar is basically good for the country. It can help to trim America's trade deficit with the rest of the world. American goods and services become cheaper overseas, so international sales of U.S. corporations tend to rise, which boosts profits and preserves jobs in the U.S. So with a falling dollar (not falling, not crashing) American producers of goods and services get an advantage. If they are exporters, their products become more affordable for foreign buyers. If they sell mainly to the domestic market, they benefit from the higher prices foreign competitors have to charge in the United States.

On the flip side, Americans going overseas will find things to be very expensive (as you know). A strong dollar can also lure foreign investments into the U.S.

On the policial front... many suggest that a lower dollar is the third leg of the Bush administration's economic policy (along with tax cuts and low interest rates... however all presidents prefer low interest rates, nothing new there). A cheap dollar boosts American industry at the expense of foreign competitors and helps keep jobs in the United States.

Here's a link that goes into more detail than you prob. want, but it should answer any and all questions you might have with exchange rates:

Exchange Rates