e housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States neAn exchange rate is the price at which the world demand for one currency equals the world supply of another currency. Foreign exchange rates are of particular concern to governments because changes in foreign exchange rates affect the value of products and financial instruments. As a result, unexpected or large changes can affect the health of nations' markets and financial systems. Variations in exchange rates also impact international investment flows, as well as export and import prices. These factors, in turn, can influence inflation and economic growth.

Interest-rate differentials between countries are one of the main factors that influence exchange rates. Money tends to flow into investments in countries with relatively high real (that is, inflation-adjusted) interest rates, increasing the demand for the currencies of these countries and thereby their value in the foreign exchange market. Price of oil, trade and the fiscal position and ratings of each country are also equally important.

The Greenback's tumble early on in the year to a 20-year low of $1.32 against the Euro was no surprise to many observers. In fact, now that the Dollar has continued to fall to its present rate of $1.35 for Є1.00, in retrospective the only real surprise was that it had not slipped sooner. And, furthermore, there are good reasons to expect the slide to continue.

The recent decline was triggered by nasty news about the American economy, paramount among which the fact that the housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States nee

nd financial systems. Variations in exchange rates also impact international investment flows, as well as export and import prices. These factors, in turn, can influence inflation and economic growth.

Interest-rate differentials between countries are one of the main factors that influence exchange rates. Money tends to flow into investments in countries with relatively high real (that is, inflation-adjusted) interest rates, increasing the demand for the currencies of these countries and thereby their value in the foreign exchange market. Price of oil, trade and the fiscal position and ratings of each country are also equally important.

The Greenback's tumble early on in the year to a 20-year low of $1.32 against the Euro was no surprise to many observers. In fact, now that the Dollar has continued to fall to its present rate of $1.35 for Є1.00, in retrospective the only real surprise was that it had not slipped sooner. And, furthermore, there are good reasons to expect the slide to continue.

The recent decline was triggered by nasty news about the American economy, paramount among which the fact that the housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States ne

h real (that is, inflation-adjusted) interest rates, increasing the demand for the currencies of these countries and thereby their value in the foreign exchange market. Price of oil, trade and the fiscal position and ratings of each country are also equally important.

The Greenback's tumble early on in the year to a 20-year low of $1.32 against the Euro was no surprise to many observers. In fact, now that the Dollar has continued to fall to its present rate of $1.35 for Є1.00, in retrospective the only real surprise was that it had not slipped sooner. And, furthermore, there are good reasons to expect the slide to continue.

The recent decline was triggered by nasty news about the American economy, paramount among which the fact that the housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States ne

any observers. In fact, now that the Dollar has continued to fall to its present rate of $1.35 for Є1.00, in retrospective the only real surprise was that it had not slipped sooner. And, furthermore, there are good reasons to expect the slide to continue.

The recent decline was triggered by nasty news about the American economy, paramount among which the fact that the housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States ne

e housing markets' troubles are having a wider impact on the economy as a whole than originally anticipated and, second in line, the global imbalances that the American current account deficit has created. The U.S. current account deficit, which is mirrored by current account surpluses in Asia and in many oil-exporting countries, has grown to the point where the United States needs to attract 70 percent of the world's capital flows to finance its interest payments only - clearly an unsustainable situation. There are also mounting concerns that Central Banks in China and to a lesser extent in India, which have been piling up Dollars assiduously for years, may start selling.

Ben Shalom Bernanke, the Chairman of the Federal Reserve System, continues to sound unperturbed suggesting that the American economy will enjoy a soft landing, a statement which would lead to believe that interest rates are not going to undergo drastic cuts. This notion has underpinned the belief that the Dollar will hold up in the medium run, because foreign investors will remain eager to buy American assets and so finance the country's current account deficit. But if house prices continue to fall, the risk of a recession will grow and the enthusiasm of foreign investors for the Greenback will shrink.

Yet, despite all, the attractiveness of the American Dollar is based more on an illusion than anything else.

The main psychological reason for the strength of the Dollar has been the widespread belief that the American economy vastly outperformed the world other rich-country economies in recent years. This belief is now beginning to change among foreign investors, for a variety of reasons. First and foremost the figures do not support the hype. For instance, it is true that America's GDP growth has been faster than Europe's, but that is mostly because America's population has grown more qui