Nov 11, 2007

Gene Epstein: "Mildly bullish" on the dollar

THIS WEEK MARKS THE SECOND ANNIVERSARY of the dollar's most recent near-death experience. The greenback handily avoided the fate that those in the know expected in 2004 as worries mounted about America's trade deficit. There might be a lesson or two in that turnaround tale for those who still believe the dollar will eventually succumb. In any case, the story helps inspire this constructive outlook for the greenback.

To be "constructive" is to be mildly bullish. The U.S. Dollar Index, which reflects the dollar's strength against a basket of currencies, is now at a reading of about 85, down from its 2002 high of 120. Over the next 12 months, it's more likely to climb back to 90 than to move sideways or go down. One reason: The rise in U.S. interest rates over the past few years has attracted more foreign capital to dollar-denominated investments.

~ Gene Epstein, economics editor, Barron's, "The Buck Takes Wing," November 20, 2006

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