Reply #46: Reacting to a Dollar With No Muscle

[54anickel]

http://www.nytimes.com/2005/01/03/business/03xlede.html?adxnnl=1&oref=login&adxnnlx=1104771756-Hx9VZIutJOt6SBMU6V/qvQ

THIS is going to be the year the world learns to live with a cheaper dollar. How well it does that may have a profound effect on prospects for continued world growth. That, at least, is the predominant opinion as 2005 begins.

The dollar's travails dominated the market news in the year just ended and were all the more important because they influenced perceptions of other events. The big rises in gold and oil seemed larger when measured in dollars than they did when calculated in euros or yen.

But the most important fact about currency markets in 2004 was that the dollar did not budge against the Chinese yuan, or against other Asian currencies that are effectively tied to the dollar. The big issue this year will be whether those ties are broken, and, if so, how markets and economies will react.

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The currency movements also mean that for American investors overseas markets generally did better than American ones. While leading European markets were up less than 10 percent in euro terms, because of the euro's appreciation they showed double-digit gains when measured in dollars.

Even so, American investors were less interested in European stocks in the past year than in Chinese ones - or at least in companies that could claim to benefit from the Chinese boom. Those chasing that boom in 2005 may be risking getting in at the top, but there is little indication that the urge to buy Chinese will stop.

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