Trade Weighted Exchange Index
May 25, 2009
Dollar Vs. Currencies of Broad Group of Trading Partners
After rallying last fall in response to the global financial crisis, the dollar has been sliding again since early March. This is both good news and bad news. The good news is that investors are becoming less fearful, selling U.S. Treasuries in favor of riskier assets that will rise in value as the economy recovers, such as oil, commodities and global equities. The bad news is that the dollar’s recent slide is partly related to concern over looming budget deficits that will require massive new Treasury auctions. If our trading partners become less willing to hold dollars, it could drive up interest rates and inflation in the U.S. For commercial real estate, this is a wash. A weak dollar means that U.S. goods and services including real estate are cheaper for off-shore investors, and a little inflation could support property values. On the other hand, higher interest rates will drive up financing costs. If the dollar weakens further over the next few months, it could tempt foreign investors off the fence. Perhaps this will be one of the groups to kick-start the anticipated feeding frenzy for distressed properties and debt.
Source: Federal Reserve, Grubb & Ellis