Growing Strength of the U.S. Dollar

Robert Hsu, September 11, 2008

Volatility has been the name of the game in the markets this year. I think many investors have learned not to get too excited about big upswings in the market, because as many have learned (usually with profit losses), what goes up must come down.

Similar to the markets, the value of currencies experience the same kind of fluctuations. Anyone who has traveled overseas to Europe in recent years knows the pain of the weakening dollar against the euro. In September of 2006, for every dollar spent in Europe, about 27 cents was lost. So if you bought a souvenir that was 100 euro, you were actually spending $126 on it. Talk about a punch to the wallet!

And the exchange rate of the U.S. dollar to the British pound was even worse, as it was about $1.87. Ever wonder why Great Britain has yet to change their currency to the euro? Because the value differences between the value of the currencies is so great. The British pound is much stronger than the euro, so if England switched to the euro today, there would be a lot of angry English people about their lost money.

Now, fast forward to January 2008 when the exchange rate was about $1.47 to every euro. The dollar had weakened significantly in that year and a half. This was reflected in the smaller number of vacations that Americans took to Europe. And you can also see why Europeans were making their after-Christmas shopping sprees in New York City -- they were getting more bang for their buck!

Continued on page 2.

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