U.S. Dollar on One-Way Street

By Andrew Paparozzi
In March 13, 2008

Is it time for government intervention on the dollar? Usually when the government begins meddling in markets we should be quite skeptical. However, there are times, especially in currency markets, when traders need to be given a clear signal that it’s not an endless one-way street.

The recent decline in the dollar suggests that we may at that point. The economies of Japan and Europe are not in such great shape to warrant the type of decline we’re witnessing. Recent data on import prices show that the decline in the dollar is beginning to bite beyond the price of oil. According to data from the Bureau of Labor Statistics, these were up 4.5% year-over-year in February, even after excluding oil imports, and more than double the increase during the previous 12 months. Interestingly, the movement of import prices for books, magazines, and other printed material was roughly the same; up 4.4 % from 2.0% for the previous year. However, it is the apparent direct link between oil prices and the movement of the U.S. dollar that is most troublesome.

While any intervention will be conducted by the Federal Reserve, the go ahead to begin such action is the Treasury Department’s call. Furthermore, to be effective, action needs to be coordinated with that of the other developed nations. Hopefully, these discussions have begun at some level. As long as current conditions in currency markets persist, it will be more difficult to get credit markets on firmer footing and thus more difficult to turn the economy around. And we all know the importance of the economy on print. There are times when we need to move beyond the academics to the psychology of markets. This is one of those times.

Joseph V. Vincenzino

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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