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US Dollar Remains Distressed Despite Gains on Euro

The U.S. dollar has been on a tear versus the euro in recent months (touching 10-month highs against the single currency on Wednesday), leading some to think that greenback weakness is a thing of the past. And when one looks at the current state of affairs in Europe (with the troubles in Greece and Portugal and Spain on deck for financial drama,) it's easy to understand this perspective. But there is more to the dollar than meets the eye.

The dollar isn't really strong; it's the euro that's exceptionally weak due to economic problems in the Euro zone. It's essentially the tale of two distressed currencies with the Euro being more damaged at present. In a recent interview, Jim Rogers even suggested that it's possible that the Euro might not exist in the future if there is no clear policy to address future financial crises. So amazingly enough, despite record deficits in the U.S., the greenback actually looks appealing relative to the European currency.

But as an indication that the US dollar is, in fact, not strong, Asian currencies continue to be valued more attractively on a relative basis. With strong growth continuing in Asia and the sputtering U.S. economy, there's every reason to believe that this trend will continue.

As an investor it makes sense to ride the wave of U.S. dollar strength versus the Euro. But don't be fooled into thinking that the dollar is strong because of confidence from global investors that the U.S. economy is on healthy ground. Because of the massive debt in the American economy, there is still significant concern and this will weigh on the dollar versus stronger Asian currencies. That's not going to change until fiscal responsibility reappears on Capitol Hill.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.