Greenback to Devalue, Become Unfavorable in 2007

Numerous international and local financial experts predict the US dollar to depreciate in contrast with the Vietnamese dong next year.

The gap between the US dollar’s and the euro’s interest rates in the international market is forecasted to narrow in the coming years.
Compared to other foreign currencies, the US dollar is more likely to devalue next year as its many standard growth factors disappear.

According to many financial experts, the interest rate of the US dollar has been set incredibly high and raising the figure will be impossible for the US Federal Reserve.

In coming years, the gap between the US dollar’s and the euro’s interest rates in the international market is forecasted to narrow.

Inflation data released this week showed that the annual inflation in the euro zone remained at 2.5% in July, beating the European Central Bank (ECB)'s target of nearly 2.75%, after holding its interest rate steady at 2% since June of 2003.

According to many experts, the ECB will raise its key interest rate by 50 basis points amid solid economic growth and the threat of inflation caused by the rising prices of oil and raw materials.

The Royal Bank of Scotland also predicted the twelve nation euro zone’s rates to increase to 3.25% by the end of this year and stay the same through 2007 as the bank is pushing for higher borrowing costs.

Another reason for the depreciation of the greenback is the current trade imbalances of the US market. The US ran an account deficit of over US$715 billion in 2005, accounting for roughly 6.5% of its GDP. The figure is forecasted to grow to 7% in 2006 and up to 10% in the next five years.

Currently, many central banks are more likely to buy the euro than the US dollar in a bid to diversify their current foreign currency reserves. Meanwhile, some Asian central banks have reported that they have already purchased sufficient US dollars and will stop buying the greenback soon.

One US dollar is now sold at VND16,080 on the free market, which is an increase of VND20 per dollar since the mid-September price and which reached its highest value since May, 2006.

By D.C – Translated by Trong Khuong

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