Sinking dollar subject to change
Stars and Stripes March 9, 2008
KAISERSLAUTERN, Germany — How low can the dollar go?
That is the million-dollar question, or if you prefer, the million-euro question.
Some global currency analysts predict the euro has reached its peak against the dollar.
Greg Salvaggio, vice president of capital markets for the Washington, D.C.-based Tempus Consulting, is one of them. He says the dollar could fall a little in the short-term but should rebound later this year.
“Our forecast is that the dollar is going to recover,” Salvaggio said in a telephone interview with Stars and Stripes. “It should start to recover in early May or June.”
That is music to the ears of many Americans who live in Europe. But even currency forecasters acknowledge their field isn’t an exact science.
“We’re kind of in unchartered territory here,” said Ömer Esiner, a senior market analyst for Ruesch International in Washington.
Watching the dollar tumble and gas prices rise has been excruciating for those stationed in Europe. And it makes little difference which country they are in.
The dollar fell to another record against the euro last week, trading Friday at $1.54 for a euro in most markets. The exchange $1.57 for a euro at military banks.
Despite a rally after the British pound hit $2.11 in November, the dollar has hovered at about $2 to a pound at military banking facilities, closing at $2.06 on Friday.
The plummeting greenback comes on the heels of a government report that showed a high number of U.S. job cuts in February, spreading fear that the U.S. is heading toward a recession.
The wide gap between U.S. and European interest rates has only added to the euro’s gain on the dollar, Esiner said. But there is hope, strategists say.
If the dollar continues to slide, there could be a call for intervention, and Europe and Japan could start buying dollars to increase their value. The question is: What point is the tipping point?
“I really don’t see any immediate relief for the dollar,” Esiner said.
But there could be hope by this summer.
If the U.S. economy begins to stabilize and Europe’s economy begins to slow, the dollar could make a rebound. That is exactly the scenario analysts at Tempus Consulting are forecasting.
They’re predicting that the United States will emerge from the credit problems and Europe will see its growth drop. Growth in Europe could slow to the point that the European Central Banks will have to cut rates, slowing the euro’s climb on the dollar, Salvaggio said.
He is predicting the euro could cost $1.32 by the end of the year.
The fact that there will be a new administration in the White House, which might favor a stronger currency, could help the dollar more.
Despite current exchange rates, military financial readiness program officials across Europe said they have not noticed a spike in the number of servicemembers looking for emergency financial relief. Organizations such as the Air Force Aid Society and Army Emergency Relief offer loans to needy servicemembers.
“The basic fundamentals aren’t really affected by the exchange rate,” said Tony Walton, a financial readiness program educator in Mannheim. Cost-of-living and housing allowances are meant to buffer such drops in the dollar. Plus, people can shop at the commissary or exchange, where purchases are made in dollars. But he added that the weak dollar has “definitely cut into how much you can enjoy life in Europe.”
That doesn’t mean Americans should stockpile euros out of fear that the dollar will continue to fall, because they could lose in the long run if the dollar rebounds. Instead, analysts suggest they should weather the storm by cutting their spending on the economy and pay in dollars whenever they can.
“Even for the currency experts, it’s really tough to call,” Esiner said.