by Bruce Porteous bruceport [at] xtra [dot] co [dot] nz Fri Nov 26, 2004

A currency dealer displays US dollar notes at a currency exchange office. The dollar plummeted to new lows against the euro on expectations Russia could par down its dollar reserves in favor of euros and amid ongoing concerns over the US budget and current account deficits, analysts said. [AFP] http://www.chinadaily.com.cn/english/doc/2004-11/26/content_395102.htm

Over the last few days there has been a number of articles in the media about the steady decline of the $US against the Euro. While many economists have forecasted the possibility of the dollar declining against the Euro for sometime, most do not comprehend the significance of this. Some believe that the decline of the dollar against the currencies of American¹s trading partners will help correct the USA¹s trade deficit, and the dollar will stop falling when the trade imbalance is corrected. However, the evidence is that the opposite is happening ­ the $US has declined 40% against the Euro over the last 2 years, and during this time America¹s trade deficit has continues to deteriorate.