Transcripts

The Unpredictable Currency Climate

PAUL KANGAS: While currency traders sold dollars today to clear their books ahead of the holiday break, there has been little rhyme or reason for currency trading in recent days. As Scott Gurvey reports, the greenback's wide price swings this year have been producing Excedrin moments for investors.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The relative value of the dollar is not something we think about a lot, unless we travel outside the country. That's because most of us are paid for our work in dollars and then we buy stuff with those same dollars. We only think about currency conversions when we find the price of that widescreen TV has gone up and we are told the weak dollar is to blame. In October, the dollar seemed to make a bottom against other currencies -- like the euro shown here -- as the worldwide economic crisis deepened, but it has lost momentum as the year draws to a close. Steven Englander of Barclays Capital sees another change in sentiment.

STEVEN ENGLANDER: There has been massive safe haven demand for U.S. Treasuries. It's been the safest of all assets globally. But if you can think of a world where we're not quite as risk averse as we are now and when people begin to worry about supply and demand of different types of assets and the yields that they're giving, the huge issuance of essentially zero yielding Treasuries isn't a formula for a very strong dollar.

GURVEY: But Marc Chandler of Brown Brothers Harriman argues it would be a mistake to bet against the American economy and the dollar at this time.

MARC CHANDLER: Many people have been concerned about the U.S. has been in the decline, people said. I think that out of this crisis the U.S. will emerge strong than before. Look at what's happened to the main U.S. adversaries. Russia, Iran, Venezuela -- they've all been hit by this collapse in oil prices from $140 a barrel to like $35 a barrel. They're ability to project their power has been terribly frustrated.

GURVEY: Ironically, Englander says as long as interest rates remain lower in the U.S. than elsewhere, the dollar may be slow to gain from a stronger economy.

ENGLANDER: Europeans aren't going to be issuing as much and they're not expected to cut rates as much and they're kind of saying, the U.S. may be doing the heavy lifting in terms of pumping up global asset markets and eventually global demand. Europe is kind of a little bit more reticent on the rate cut side and their fiscal plans aren't as ambitious and that's actually a formula for a stronger euro, not a weaker one.

GURVEY: Confused? Well, most analysts tell me the world remains scared and therefore still risk averse and therefore still demanding safe haven dollars. So the price of that TV set should not be going up any time soon. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.