Transcripts

The Dollar Proves To Be A Real Downer

PAUL KANGAS: Also falling these days, the U.S. dollar. The U.S. currency is at an all-time low against the euro, a two decade low against the British pound and a six week low against the Japanese yen. Erika Miller reports on what is driving down the dollar and the outlook from here.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: European vacations have become more expensive for Americans this summer as a result of the falling dollar. But even if you don't leave home, the weakening currency could impact you. Not only can a weaker dollar push up prices for imported goods, but it can also boost Treasury bond yields, which, in turn, can raise mortgage rates. The dollar is hovering at an all time low against the eight-year old euro. It is at a 26-year low against the pound and a six-week low against the Japanese yen. Currency strategist Meg Browne says investors are selling dollars and buying other currencies in order to get a higher rate of return.

MEG BROWNE, SR. CURRENCY STRATEGIST, BROWN BROTHERS HARRIMAN: There are a number of countries overseas that are major countries that are likely to continue to hike rates. Those include the ECB. But you look at a country, for example, like New Zealand, where rates are likely to be hiked this week to 8 1/4 percent, way above U.S. rates.

MILLER: HSBC currency strategist Robert Lynch says worries about defaults in the U.S. sub-prime mortgage market are also a factor.

ROBERT LYNCH, CURRENCY STRATEGIST, HSBC: The concerns, I think so far are certainly unfounded, that the problems there may be much deeper than what has been seen so far. And that it could have some impact on the financial system in the United States.

MILLER: Lynch and others expect the dollar to continue to weaken near term. But some traders believe there could be a turnaround in a few months, especially if the Federal Reserve raises interest rates.

BROWNE: At the end of this quarter, we think the U.S. dollar is going to be near a bottom and is going to start to strengthen mainly because we think growth is going to continue and there are upside risks to inflation. And the market will come round to the view that the Fed is going to hike toward the end of this year.

MILLER: Currency traders say they're waiting for Friday's report on gross domestic product. If it changes expectations for monetary policy, traders predict there will be a ripple effect in the currency market. Erika Miller, NIGHTLY BUSINESS REPORT, New York.