Despite the impressive performance of the dollar in recent months, most everyone on Wall Street is calling for a decline in the greenback in 2006, reports The Wall Street Journal.
The dollar has been rallying lately against the euro and the yen, leading some analysts to argue that it could strengthen even more next year. That could have a negative impact on equity investors, as strong dollar makes exported U.S. goods and services less competitive on a global basis and weighs on earnings.
But some asset managers claim that stock prices will increase on a stronger dollar, basically by muffling pressures that are a result of inflation, since it would lighten inflationary pressures. Interest rates would rise less quickly and the risk of an abrupt blip n economic growth would be less likely.
"We're looking for a continuation of the dollar rally," says Gary Thayer, chief economist for A.G. Edwards. "And we think that we're close to a point where others may also start to begin thinking more favorably about the dollar.
A Dow Jones Newswire survey of 18 banks shows that the dollar is expected to decline at 9% against the euro and the yen by the end of next year.
The recent rise in the dollar has been attributed to a $100 billion in earnings that had to be converted from euros and other currencies to dollars."By the middle of 2006, it will become key to look at the U.S.'s widening trade balance," offered Binky Chadha, global head of FX Research at Deutsche Bank.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.