Transcripts

Gold & Oil Go Black While The Greenback Sees Red

SUSIE GHARIB: Oil and gold prices are approaching new milestones. In intra-day trading today, crude surged to almost $104 a barrel and gold traded close to $1,000 an ounce. Those rallies were triggered by another drop in the U.S. dollar, which has been under heavy pressure for months. The dollar is now at a new low against the euro. It takes $1.52 to buy one of them. Suzanne Pratt looks what's next for the sinking greenback.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A weak U.S. dollar may be good news for retailers on New York's tony Fifth Avenue. After all, European and Asian tourists interested in taking advantage of their increased buying power have recently been flocking to the Big Apple. Today, the greenback fell to a new low against the euro and its lowest level in three years against the Japanese yen. Foreign exchange expert Tom Benfer blames declining U.S. interest rates.

THOMAS BENFER, DIRECTOR, BMO CAPITAL MARKETS: Our interest rate structure is moving lower, while the remainder of the world's interest rate structure is much higher. So that generally us the primary reason that drives currencies, interest rate differentials.

PRATT: As long as the outlook for the U.S. economy remains cloudy, U.S. interest rates are likely to fall even further. For that reason, some experts predict the dollar will remain under pressure.

BENFER: I wouldn't rule out levels of, let's say, 155 for the euro or maybe 101, 100 for the yen. The drumbeat of bad economic reports is going to continue from now all the way to the summer it looks like to me.

PRATT: U.S. multinationals that do big business overseas are likely to be big beneficiaries of the weak dollar, as it allows their products to carry cheaper price tags. But experts say there are no other major positive byproducts of a declining U.S. currency. The weak greenback has been driving up the price of oil, which is sold in dollars. Not only is that bad for U.S. consumer spending, but it's inflationary. The weak dollar also drives up the prices of imported goods, further fueling inflationary pressures. Bear Stearns economist David Malpass says the dollar's collapse is also scaring away foreign capital.

DAVID MALPASS, CHIEF INTERNATIONAL ECONOMIST, BEAR STEARNS: With the dollar weak, the money flows away from the U.S., so it hurts a lot of the U.S. corporate sector. It is benefiting, for example, European equities. They've outperformed U.S. equities substantially over these last five, six, seven years.

PRATT: Even the most bearish forecasters believe the dollar will hit bottom sometime this summer. That's assuming the U.S. economy starts to recover and the Federal Reserve stops cutting interest rates. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.