US Dollar Exchange Rates

As the European debt crisis threatens to worsen, US dollar exchange rates are going up. The dollar has historically been considered a safe haven currency, along with the Yen, Swiss franc, and the Euro. The Euro is in trouble because of the sovereign debts of several of its members, most especially Greece. Both Japanese and Swiss central banks are selling their currencies with the intent of keeping rates as manageable levels. The US is not attempting to sell dollars and manipulate the dollar’s value so US dollar exchange rates are rising. The dollar owes part of its recent surge to increases in industrial production and construction, signs of economic improvement. But, much of the rise of US dollar exchange rates is due to the dollar being the best of a number of so-so choices. Traders expect to see the dollar rise a bit more and are jumping on board for short term profits. Investors fearing a second dip to the recession and a prolonged recovery phase are putting their money where they think it is safest, in US dollars and US treasuries. US dollar exchange rates rose of late in favor of the dollar in the EUR/USD, USD/CHF, and USD/YEN currency pairs.

Higher US dollar exchange rates make foreign imports cheaper for US consumers. They also make US exports more expensive for the rest of the world. Japan, Taiwan, and now Mainland China have intentionally purchased US dollars as currency reserves over the years. Doing so has artificially lowered the value of their currencies and raised that to the US dollar. Doing so has helped these Asian nations grow to be major exporters to both North America and Europe. A continued rise in the dollar serves to help nations holding dollar reserves and serves to help all nations wishing to export to the USA.

It is not clear how the European debt dilemma will work out or the effects a debt default might have on the EU or, for that matter, the world economy. However, investors as well as Forex traders are concerned and are plowing assets into the US dollar as well as US treasuries where demand at weekly auctions has driven interest rates to historic lows. In the last years the demise of the US dollar as the primary currency of foreign trade and foreign currency reserves has been called into question. However, reports of the death of the Greenback seem to have been premature. If the US economy continues to grow a slowing of the nation’s ever increasing debt burden is possible or even a return to the last years of the Clinton administration when the US did not add to its debt and simply retired treasuries as they came due. It is possible to reduce the US public debt as seen by the example of the later Clinton years. It is also possible to see rising US dollar exchange rates as evidenced by the Forex markets of the world in the last days. Traders have done better investing in the dollar versus stocks, most commodities, and, especially, gold over the last month.