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The strength of the dollar.

The strength of the dollar.

Old Jan 7th 2015, 1:24 pm
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Default The strength of the dollar.

I'm guessing there are a fair few people on this forum involved in finance and such, I was just wondering how much stronger the dollar is expecting to get in those people's opinions? Also is it likely to weaken again this year? I'm not transferring money until near the end of the year but I keep looking at the exchange rate and it's not looking good for people wanting to transfer money to the US. I won't have loads of money but from 6 months ago it will still be about $2000 difference! Which for someone like me is a lot.

I also know in the long run it will be a good thing but knowing I have money to transfer that way in the not too distant future it's looking grim.
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Old Jan 7th 2015, 3:40 pm
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Default Re: The strength of the dollar.

Do you have a £1 coin? If so, heads means the $ will strengthen, and tails means the $ will weaken. Toss the coin in the air. Did it land heads or tails?

You have the answer to your question as near as anyone can accurately predict. Not trying to be funny, but even the experts in currency exchange can not give you any accurate prediction for 12 months in the future. World situations change too rapidly. You will find those who say one thing, and an equal number who will say the opposite. Take your pick and believe who you wish to believe and enjoy the ride.
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Old Jan 7th 2015, 3:44 pm
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Default Re: The strength of the dollar.

It's almost impossible to say given the variables and complexity of the market.

Then there's things like terrorist attacks in Europe.
The falling price of crude. Good for some, bad for others in the US.
New Congress...good or bad for the economy? I see they've voted to extend the Benghazi investigations...kinda shows their priorities.

However my opinion is that the dollar will continue to strengthen. (Or it could weaken.) It may be worth transferring sooner than later. Or perhaps in installments to spread the risk?
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Old Jan 7th 2015, 3:58 pm
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Default Re: The strength of the dollar.

Yea I've been trying to search a lot online for people's predictions but some of that stuff you have said makes no sense to me and when I read what professionals say on proper websites it's just a bit confusing but did you say terrorist attack on purpose? As it seems there has been 1 in Paris this afternoon. The dollar is the lowest it's been in 5 years I read and they say it should continue into 2015 I just can't find anywhere that says a prediction for the end of it. I was thinking installments, it's basically at 1.5 now surely it won't go much lower than that? Like it would never be equal would it? Or would it?! It's a bit like the lottery I'm guessing.

Thanks for your replies! I'll probably sit tight and enjoy the ride as you say
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Old Jan 7th 2015, 4:01 pm
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Default Re: The strength of the dollar.

Well yes, I was referring to today's terrorist attack but in general things like this can nudge the market one way or another.

And professionals? Many of them have to write articles to sell pages. They often contradict each other.

Here's my first port of call in the morning.

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Old Jan 7th 2015, 4:02 pm
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Default Re: The strength of the dollar.

I just (couple of weeks ago) changed a chunk of $$ I had sitting in a Barclays $$ account since 2006, at a rate of $1.57.

If I had changed it today (about $1.51), I would have received an additional £1,000, give or take.

I could get all bent out of shape but the fact is, as others have said, we can't tell where the dollar is going next, especially over a 12-moth period.

I faffed about for several years, and missed a couple of good opportunities due to being out of the UK. Then in the past year it went back up to $1.70.

Eventually, for me it came down to "Is today's rate acceptable to me?" and the answer was "Yes, $1.57 is acceptable, it's within long-term trading rates and it's a damn sight better than $1.70", so I went with it. I think that is the best way to look at it - "Can I live with today's exchange rate?" rather than "Will I get a better rate in 6 months?"
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Old Jan 7th 2015, 4:02 pm
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Default Re: The strength of the dollar.

You have to move it when you have to move it I'm afraid.

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Old Jan 7th 2015, 4:17 pm
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Default Re: The strength of the dollar.

Originally Posted by andrewlohnes View Post
Like it would never be equal would it? Or would it?!
In 1981 the exchange rate was $2.45 to £1.00. In February of 1985 the exchange rate was $1.044 to £1.00. In 2007 the exchange rate was $2.11 to £1.00.
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Old Jan 7th 2015, 4:24 pm
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Default Re: The strength of the dollar.

In my opinion, the GBP has to track the Euro within reason since Europe is a major trading partner of Great Britain and if the GBP was allowed to be too strong in relation to the Euro, exports would slow possibly putting a fragile recovery back into recession. So the value of the GBP appears to be based primarily on the Euro.

The Euro area has some major problems with deflation reported at 0.2%, little to negative GDP growth, government bonds at all time lows, slow moving restructuring by France and the south European countries, and the ECB is now considering quantitative easing (easy money) just as the US ended QE.

The easiest way for the Euro area to get out of the doldrums would be to cause the currency to be weaker to export more to the US and other countries and it appears that is the general policy of the ECB just like it was the general policy of the Federal Reserve for the previous 5 years. The Euro is currently only about 5% undervalued in PPP$ in relation to the USD and a 15% undervaluation would likely be beneficial to the Euro area economies.

Purchasing Power Parity

However Japan has also been forcing it's currency downwards faster than the Euro and that has hurt the Euro area so any export gains to the US may be lost to Japan. The Japanese Yen was very overvalued about 1 1/2 years ago so wasn't much of a threat to Euro exports but with a 50% decline in the Yen, it now threatens the Euro area recovery.

My projection is a weaker GBP in the near future but not certain by how much.

Last edited by Michael; Jan 7th 2015 at 4:28 pm.
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Old Jan 7th 2015, 4:29 pm
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Default Re: The strength of the dollar.

Originally Posted by theOAP View Post
In 1981 the exchange rate was $2.45 to £1.00. In February of 1985 the exchange rate was $1.044 to £1.00. In 2007 the exchange rate was $2.11 to £1.00.
Exchange rates going back to 1953 attached, if anyone is interested.
Attached Files
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Old Jan 7th 2015, 4:31 pm
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Default Re: The strength of the dollar.

Even major banks with teams of FX traders supported by currency strategists and economists can't reliably predict what the rates will be even three months from now. The variables that cause major movements and changes in the direction of movements are often unforeseen geopolitical events or major economic disruptions, so honestly, as others have said, it is effectively impossible to say with any degree of certainty what will happen to exchange rates.

That said, the US economy appears to be strengthening, so I see further rises for the USD, but soon an even stronger USD will start to make imports cheap and exports expensive, adversely affecting the US economy. Ironically bumping interest rates to dampen the economy might actually make the USD more attractive; conventionally higher interest rates are supposed to boost the value of a currency, though in the real world that relationship is far from a rigid rule. Watch out for problems in Russia, either related to action in Ukraine, or as the Russian economy tanks there could easily be a coup. .... Either of these would likely lead to further weakness in Germany, the Euro zone and the EU, and see worried investors scurrying for the perceived safety of the USD. ..... And I am not predicting this, merely saying it could happen. The last time I contributed to a BE discussion of the USD-GBP exchange rate I suggested the pound would continue to rise past $1.70, but within a couple of weeks it had slid and has continued to do so fairly steadily ever since!

Last edited by Pulaski; Jan 7th 2015 at 4:58 pm.
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Old Jan 7th 2015, 4:45 pm
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Default Re: The strength of the dollar.

Originally Posted by Pulaski View Post
Even major banks with teams of FX traders supported by currency strategists and economists can't reliably predict what the rates will be even three months from now. The variables that cause major movements and changes in the direction of movements are often unforeseen geopolitical events or major economic disruptions, so honestly, as ok thers have said, it is effectively impossible to say with any degree of certainty.

That said, the US economy appears to be strengthening, so I see further rises for the USD, but soon an even stronger USD will start to make imports cheap and exports expensive, adversely affecting the US economy. Ironically bumping interest rates to dampen the economy might actually make the USD more attractive; conventionally higher interest rates are supposed to boost the value of a currency, though in the real world that relationship is far from a rigid rule. Watch out for problems in Russia, either related to action in Ukraine, or as the Russian economy tanks there could easily be a coup. .... Either of these would likely lead to further weakness in Germany, the Euro zone and the EU, and see worried investors scurrying for the perceived safety of the USD. ..... And I am not predicting this, merely saying it could happen. The last time I contributed to a BE discussion of the USD-GBP exchange rate I suggested the pound would continue to rise past $1.70, but within a couple of weeks it had slid and has continued to do so fairly steadily ever since!
Yes. That. Agree with all your sentiments.

That said, and bearing in mind that nothing is certain, and the current elephant in the room is oil prices, but at present, the US has a stronger economic outlook than much of the rest of the world, and so it's not unreasonable to expect that the dollar will continue to strengthen against other currencies (particularly European and Asian currencies). However, the fed will be vigilant not to let it strengthen too much, but that also depends on what party ultimately owns the house and senate.

Not withstanding, of course, that Europe wises up, or oil prices fall to levels that non-OPEC producers (e.g., the US and North Sea producers) can't compete with and puts them all out of business. Or a major war (not impossible), or a major natural disaster...
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Old Jan 7th 2015, 4:56 pm
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Default Re: The strength of the dollar.

Originally Posted by Pulaski View Post
Even major banks with teams of FX traders supported by currency strategists and economists can't reliably predict what the rates will be even three months from now. The variables that cause major movements and changes in the direction of movements are often unforeseen geopolitical events or major economic disruptions, so honestly, as ok thers have said, it is effectively impossible to say with any degree of certainty.

That said, the US economy appears to be strengthening, so I see further rises for the USD, but soon an even stronger USD will start to make imports cheap and exports expensive, adversely affecting the US economy. Ironically bumping interest rates to dampen the economy might actually make the USD more attractive; conventionally higher interest rates are supposed to boost the value of a currency, though in the real world that relationship is far from a rigid rule. Watch out for problems in Russia, either related to action in Ukraine, or as the Russian economy tanks there could easily be a coup. .... Either of these would likely lead to further weakness in Germany, the Euro zone and the EU, and see worried investors scurrying for the perceived safety of the USD. ..... And I am not predicting this, merely saying it could happen. The last time I contributed to a BE discussion of the USD-GBP exchange rate I suggested the pound would continue to rise past $1.70, but within a couple of weeks it had slid and has continued to do so fairly steadily ever since!
It went on the slide the day we exchanged. There was a US Treasury announcement on interest rates due which was predicted to weaken the dollar so we jumped.

At least the delays we experienced in moving dollars out of the US worked in our favour.
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Old Jan 7th 2015, 4:57 pm
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Default Re: The strength of the dollar.

The only good thing about having to go back and be based in the London office for a year or so back in 2007/8 in order to qualify for the L1 was the exchange rate. Saw almost $2 to the pound for the majority of the time.
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Old Jan 7th 2015, 5:02 pm
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Default Re: The strength of the dollar.

Originally Posted by amideislas View Post
Yes. That. Agree with all your sentiments.

That said, and bearing in mind that nothing is certain, and the current elephant in the room is oil prices, but at present, the US has a stronger economic outlook than much of the rest of the world, and so it's not unreasonable to expect that the dollar will continue to strengthen against other currencies (particularly European and Asian currencies). However, the fed will be vigilant not to let it strengthen too much, but that also depends on what party ultimately owns the house and senate.

Not withstanding, of course, that Europe wises up, or oil prices fall to levels that non-OPEC producers (e.g., the US and North Sea producers) can't compete with and puts them all out of business. Or a major war (not impossible), or a major natural disaster...
There are economic and geopolitical forces fighting from all directions. It is expected that the Federal Reserve will raise interest rates next summer but term treasury bond interest rates continue to fall. With a weak European economy, the Federal Reserve may be hesitant to raise rates since that will likely make the USD stronger possibly stalling the US economy. Also the Federal Reserve only controls the short term rates and an inverse yield curve could occur (happened several times in the past) putting a hurt on the financial sector.

If the US economy stalls because of a strong dollar, inverse yield curve, problems in the financial sector, or over speculation, weaker European currencies won't help much and then the Federal Reserve will be back in the game making it difficult for anyone to gain the advantage.
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