By Cedric Welsch
Leading economists and analysts have forecast that the US dollar is the currency to hold in the year 2011 as they expect it to maintain strength vis-à-vis other key currencies. Their key point to support this argument is that the US economy will show better recovery as compared to the economies of Europe, Japan and the British Pound.
Their view seems to get support from the condition of the US economy, which seems to be improving. The latest numbers released by the U.S. Bureau of Labor Statistics suggests that the national unemployment rate fell to 9.4% in December from an earlier figure of 9.8%. The encouraging part of this news was that the job additions came from the private sector, which continued to add jobs for the twelfth consecutive month. As per the report, the private sector added 103,000 new jobs in December. Overall, in the year 2010, the private sector added nearly 1.3 million new jobs. A point to note is that, the rate of growth in job additions strengthened quarter on quarter throughout 2010, suggesting that the growth was taking place in a sustainable manner. Thus, while nearly 14 million Americans may still be jobless, the rate of job addition has been catching pace. The report also suggested that due to the wearing off of the government stimulus, jobs were lost at the state and local government levels. Nearly 20000 state level government jobs were pared in December and the figure for lost state level government jobs last year stood at 250,000. Meanwhile, manufacturing in December expanded at the highest rate in the last seven months and holiday season sales were up 5.5%.
This suggests that the government initiated fiscal stimulus programs did have some impact and in their absence, the state of the US economy could have been much worse. Experts believe that in order to keep the process sustainable, the US government needs to keep some of the fiscal incentives alive in order for the economy to maintain its growth trajectory.
While, the fiscal policy stimulus is under debate, the US Fed’s planned monetary policy stimulus could grease the wheels of the US economy and help it maintain its growth momentum. The US Fed is expected to print around $ 600 billion and inject it into the economy via purchase of government bonds. This injection is likely to keep interest rates tamed and provide a stimulus to credit off take. Analysts earlier had felt that such a massive injection of liquidity into the economy could lead to the solar paring its value. However, now with the US economy on the uptick, and the other economies of UK, Europe and Japan still under a cloud, analysts are of the view that the US dollar could take lead versus currencies like the pound, Euro and the Yen. And it may be the ideal currency to invest in.
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