View of the Falling US Dollar

Sep 23, 2007: 7:20 PM CST

Here are the charts of the Falling US Dollar Index ($USD) and a comparison to the Dow Jones Average.

First, the Daily Damage (thanks, Federal Reserve):

From mid-June to present, the US Dollar Index has fallen 5.70%.

US Dollar Index Weekly View

A weekly view tells a more dire and dismal picture for the Dollar Index. There appears to be a momentum divergence forming, but that still doesn’t change the fact that price is still making new lows.

The Dollar index is in a strongly confirmed downtrend, and odds favor trend continuation.

Let’s compare the Dow to the US Dollar in percentage terms since early 2006 to present:

What this means is that from 2006, the Dow has risen 27.5% while the US Dollar Index has fallen 12.5%.

This means that, while your portfolio might be showing some massive gains over the last two years, if you cashed out those gains and tried to spend them overseas, you might be rather shocked at the results – that the true value of your portfolio is about 12% less than what you actually believed it was in REAL terms.

The actions of the Federal Reserve in lowering interest rates further squeezed the dollar pressure lower, and we have not only made new lows on the year, but we have broken below the lows of 2005 and back to 1995.

Even though the market is up for the year, it’s as if Americans have returned 10 years in the past with their total dollar based assets. While their portfolio may be making new highs, their ability to purchase goods and services abroad has dramatically declined, and continues to do so.

While this might not affect the average American who never travels abroad, or doesn’t deal in multi-national negotiations, it will affect average Americans in various ways, even if they don’t change their dollars for other currencies anytime soon.

What will this mean for the US Economy and the average US consumer? One obvious answer is that cash-strapped Americans will be holding back on European vacations if they find they can’t afford them… but will that mean more dollars will stay in the States?

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