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 Offsetting The Falling Dollar

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Number of posts : 440
Registration date : 2007-07-01

PostSubject: Offsetting The Falling Dollar   Thu Oct 11, 2007 10:56 pm

Offsetting The Falling Dollar

from MarketBeat Blog - by David Gaffen
ongoing weakness in the U.S. dollar has long concerned analysts, who
fret about inflation in the form of costlier goods from overseas. But
various economic factors have muted the decrease in the dollar’s worth when it comes to imports, as today’s data on import prices demonstrate.
While the dollar has lost 16.5% of its value against the Canadian
dollar in the past 12 months, prices of goods imported from Canada have
risen by just 5.3%, according to the Labor Department. Similar
differences exist in other parts of the world, and there are a number
of reasons why, according to Marc Chandler, head of currency strategy
at Brown Brothers Harriman.

Change v. Dollar
Change in Import Prices


Euro Zone




He points out that the vast majority of U.S. imports (93%) are
dollar-invoiced, compared with about half the imports in the euro zone
and 26% in Japan. This limits the effect of the falling greenback.
In addition, he says foreign companies tend to respond to a currency
shock by cutting costs and sacrificing profit margins in order to
maintain market share in the U.S., the world’s largest economy.
Furthermore, he says about half of the U.S. trade deficit involves “the movement of goods and services within the same company,” such as international powerhouses like General Electric.
As a result, while the dollar index continues to plumb the depths,
the actual impact on American consumers is a bit more limited. That doesn’t mean the sorry showing of the U.S. currency is anything to applaud – but it does suggest some of the inflationary factors are being mitigated.
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