You might recall, in prior Posts, that I have mentioned the importance of the USD. Now, Republicans have always called for a Strong Dollar Strategy, along with their stressing of an “Exceptional America”. But, that is all political rhetoric. I, however, look at our Dollar as just one more indicator of the Financial Markets–and the Economy, in general.
Just think about it! If a Strong Currency were so vitally important, why would Germany insist on staying with the Faltering Euro. Germany has traditionally been an Export Economy. So, if their Domestic Economy were based on a Strong Deutschmark, their Cost of Production would go UP, and the Cost of their Exports would rise considerably.
So, with higher prices on a World Scale, Germany’s Exports would become more expensive–and both Production and Overseas Sales would drop. Remember that they couldn’t count on selling much of their products to other European Countries, many of which are in a Recession, or very close to it.
Earlier today, the US Stock Market was UP nicely, due to somewhat better than expected “Jobs Numbers”. However, both Exxon and Chevron, two very large components of the S & P 500 failed to meet expectations when they announced their quarterly earnings today. At the same time, the USD jumped from 1.292 to the EURO, at the market open, to 1.283 by 2:PM. That doesn’t sound like much; however, in “ForEx” (Foreign Exchange) terms, that is a considerable market. move And, if the Dollar keeps getting stronger, that could further hurt our Export Markets.
Just to step away for a moment, I realize that a lower number in the conversion rate, from one currency to another, sounds like, well…a lower number. But, the reverse is true; because the lower conversion rate means it costs fewer Dollars to buy something that is priced in EUROs. Products denominated in Japanese Yen and British Pounds, as well as many other currencies, would also cost more, as well.
So, while the DJIA had been UP by 55 points in mid-morning, due to the strong Employment Report, it closed DOWN by 135 points. Also, the Economy is a little skittish as we near the Presidential Election–due to the Uncertainty of who the Next President will be. Additionally, New York City and the entire Northeast continues to be distracted by the aftermath of Hurricane Sandy. Hence my Blog Post, several weeks ago, questioning whether the MarketS are Rational or Irrational.
P.S. I will discuss the concept of an Exceptional America in a Future Post.