Transcripts

The Greenback Profits From The World Market Mayhem

PAUL KANGAS: The turmoil on world markets recently has had an impact on the U.S. dollar, sending it rising sharply against other currencies. That reversed what has been a month-long slide for the greenback. But as Scott Gurvey reports, many analysts believe the dollar's rally may be short- lived.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The dollar hit a six-week high against the euro in today's trading and was strong against most other currencies. Analysts say, in some ways, this is a reaction to the problems in the debt markets. Investors are fleeing securities with exposure to the credit crunch. Thomas Benfer of BMO Capital Markets sees two reasons for the flight to cash.

THOMAS BENFER, SR. FOREIGN EXCHANGE ADVISOR, BMO CAPITAL MARKETS: Investors want to have liquid investments. They're trying to liquefy whatever they do have and that's really the main objective, at this point. And the dollar is strengthening because you notice that some of the investments, the plays that we've seen over the last year -- the yen carry trade, the Swiss carry trade. Those trades are being reversed and investors are getting out.

GURVEY: Another reason for the dollar's rise might be found in the unexpected increase in American exports in June. Exports rose 1.5 percent to a record $134.5 billion. Imports grew one half of one percent to a record $192.7 billion. That cut the deficit to just over $58 billion. A stronger dollar should increase the trade deficit by making American exports more expensive to overseas buyers. But trade is a lagging indicator and the effects of a stronger dollar would take months to show up. And some market watchers think the dollar may be nearing a top, mainly because economies are weak in Europe and Japan. Bob Brusca of Fact and Opinion Economics says slow growth overseas will hold back the dollar.

ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: A traditional approach would be to say, look, we've got this big trade deficit. The dollar should fall; it needs to fall in order to correct that. But there are other things that are happening that are sort of stopping that. One is that there isn't really any other currency that can rise and since the dollar is a relative variable, it can't fall unless it falls against another currency.

GURVEY: A cut in interest rates in the United States would also restrain the rise in the dollar. Market watchers who are calling for the Fed to make such a rate cut will be closely watching tomorrow's report on consumer prices for signs of inflation. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.