Thursday, February 5, 2009

Despite rising deficit, haven status continues to support dollar

From Bloggingstocks.com:

Why is the dollar faring reasonably well despite the U.S.'s rising budget deficit/national debt and little good news of late on the U.S. economy? It's a version of the old notion that 'misery loves company,' -- in this case, "the currencies are equally miserable," so says Andrew Resnick, currency trader.

Historically, a national debt approaching a nation's annual GDP, combined with a recession, and large job losses, would cause a currency to fall substantially, Resnick said. And that's traders' initial inclination, until they look at financial and economic conditions in Britain, on continental Europe, Japan, China, Russia, and Brazil: all are in roughly the same boat, economically, with varying degrees of public debt, he said. If anything, the United States may be viewed as "relatively better off, given that it is later in its economic cycle and will probably recover first," Resnick said.

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