The sick dollar...

Even on a trade weighted basis, the dollars steady descent, losing 35% of its value since its peak at the end of 2001 is impressive. Certainly the perceived global GDP decoupling and the resulting current and anticipated widening differential in interest rates with the rest of the world explains to some extent the relentless depreciation. We could also argue that, despite the official view in support for a stronger dollar amongst politicians in the U.S. and elsewhere, a weaker dollar may actually be more attractive. It helps narrow the current account deficit, pending a "j" curve effect lag, makes interest payments in other currencies cheaper, and may be a good idea considering that with the housing downturn and gasoline at record prices, U.S. consumers are starting to feel the pinch, pushing them towards savings. On the longer run (and here I am thinking of a horizon of 3 to 5 years), the dollar is set to appreciate mainly as a result of demographics. Amongst developed nations, the U.S. has one of the youngest populations, in stark contrast to Europe, and to a greater extent, Japan. Current account deteriorations, as the trend moves from production to consumption, is likely to be more pronounced in countries that have a greater percentage of retirees. These will also be the countries that will see the largest inflows in capital as their financial instruments become increasingly attractive to developing nations seeking a stake in world class firms.