27.12.06

Dollar Outlook 2007


WestLB, a German bank , gave prediction for the state of global economy in 2007.
Some portions of report are of interest to me.
I consider WestLB as higly reliable source for economic data.
What caught my eye in this report is -->

Falling real estate prices in US...:

In the US, falling real estate prices are restricting the amount of money available for consumption, which is slowing GDP growth. Even if we only see limited risks of a recession on the other side of the Atlantic, this is likely to bring about a turnaround in US monetary policy.


German economy should be OK:

German companies' improved competitiveness is likely to tone down the negative effects on exports and investments arising from the slowdown in global economic growth.


Fed to cut rates sometime in May 2007 :

we expect the Fed to start cutting its rates in May 2007 due to a less promising growth outlook and an improving inflation prospects. We expect to see three small rate cuts by the summer, which will bring the Federal Funds Rate down to 4.50%.

ECB moves rates up in 2007.:

As far as the ECB is concerned, we are reckoning on a further rate hike to 3.5%, a neutral interest rate level, in December. There are many indications that this will not be the end of the rate hikes.


Which will bring us to:

Differing regional growth patterns are likely to lead to divergent monetary policy trends.


US dollar to be in 2007.:

Indeed, we believe the US dollar will lose further ground in the face of the reducing growth and interest rate differential. However, it should be remembered that slower growth in consumer spending tends to tone down another factor weighing on the Greenback; i.e., the still-high current account deficit. As a result, we do not believe the dollar will veritably tumble in value, but instead feel it will settle down at around 1.35 $/€. However, the possibility of it reaching 1.40 cannot be ruled out.


That's all I wanted to know. The fate of US dollar in 2007.

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