A U.S. dollar can?t buy much these days.
Despite posting a six-week peak against the euro and three-month high opposite the yen Monday, analysts say that the dollar is in the midst of cyclical decline. Historically, the national interest rate has been directly related to the value of the dollar.
But despite a slight increase early in the dollar?s value earlier this week, interest rates will most likely remain stagnant.
“In a long-term cyclical decline, you are going to have plenty of rallies along the way, but there is no way that the U.S. dollar has any long-term viability with the way we are handling our economy compared to the rest of the world,” said Drew Tignanelli, president of The Financial Consulate in Lutherville. “In the short run, [values] might act strangely, but in the long run, [analysts] are right that the dollar is in trouble.”
As of Wednesday, the U.S. dollar was valued at $1.3420 against the euro, $1.97 against the pound and worth 121.45 yen. The dollar is only .001 cents off of the euro?s six-week low, but .70 yen away from tying a four-year high.
Internationally, the U.S. is referred to as the world currency reserve. This means that commodities and important global financial transactions are usually done through the dollar. However, if the value of the dollar would drop far enough, countries would begin doing their business and trading commodities in other forms of currency with higher value, creating an even bigger hit for U.S. investors.
Meanwhile, the Federal interest rate has remained consistent at 5.25 percent since last raising the rate in June of 2006 a quarter of a percent.
“With the way markets are at this point, I don?t really think the [government] is going to raise rates,” said Stewart Hoffman, chief economist with PNC Financial Services Group. “The [government] won?t either raise or lower them for the remainder of the year, and rates will remain on hold coming up on nearly a year. It?s almost a stalemate.”
