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Why the US dollar has been falling - From an advisor

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Why the US dollar has been falling - From an advisor

Postby Winston » Mon Dec 17, 2007 9:54 am

Dear all,

One of my advisors (not the cultural consultant) wrote me this explanation of why the dollar has been falling. Here it is: (I thought it was because the world hated George Bush, is that not the reason?)

-----------------------------------

The Philippine government is not increasing the value of the peso.
The US Federal Reserve is dropping interest rate to prevent its stock
and housing market from melting. When you drop interest rate, it
makes it cheaper to borrow $ from the central bank, and therefore the
dollar supply in the market goes up, and its value goes down. When
dollar value goes down, foreign currency value goes up. See Euros
chart for this year:
http://www.x-rates.com/d/EUR/USD/hist2007.html

Thus, it's a natural market condition for the Philippine peso to rise
in value (blame the US government). If the PH government wants to
reverse the trend, they'd have to lower the value of the peso, by
either fixing the peso exchange rate (what China and Malaysia does),
or lowering their interest rate to increase the market supply of the
peso, and therefore reducing its value.

Since the Philippine government carries a lot of debt, it's probably
not in their best interest to do so. Because if the peso goes up,
it's easier for them to pay back in dollars.

If the US government rise its interest rate, it'd reduce the dollar
supply and increase the dollar value. But they don't want to do that,
because it may spark off a recession sooner.
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