Predicting the Decline of the Dollar

A good question to ask is how often do economic forecasts prove correct?

In practice, the track record of economists is not great when it comes to trying to predict future economic trends.

I am relatively pleased with myself for writing this article back in 2006, suggesting why the dollar was weak and why it would continue to devalue - Why dollar is devaluing

The interesting thing is that many of these economic imbalances remain in place.

There is still a current account deficit (although it is slightly smaller at 5% of GDP than its peak of 6.5% of GDP)

US interest rates are very low as the Fed try hard to stave off recession.

US housing market woes continue to weaken the economy.

But, on purchasing power parity, the dollar is beginning to look cheap. Surely the decline of the dollar has to stop sometime?

The other issue is the dollar as a reserve currency. The Euro is increasingly being looked to as an alternative. With the dollar out of favour with international investors there may be no easy ride for the dollar in the forthcoming months