End of the Dollar’s Decline?

This week’s Buttonwood column in The Economist is all about the prospects for further decline in the dollar. Buttonwood is starting to think that we’re near the end of the dollar’s fall. It’s worth a read, if the subject interests you. The column ends with some good questions without ready answers:

The dollar has already fallen a lot, but how much further does it need to fall to correct America’s imbalances? American assets are already a lot cheaper than they were, and thus, presumably, more attractive to foreign buyers. How long will European policymakers be content to see the euro rise so sharply when Asian currencies are not? Judging by comments from Mr Trichet and others, not that much longer, especially given that Europe’s recovery is a lot more fragile than America’s seems to be. And how long will Asian countries continue to spend money building up foreign-exchange reserves that earn next to nothing and carry the risk of currency losses, rather than use the money to invest in their own region, which seems set to grow an awful lot in coming years? Fund managers’ view of the dollar is at an all-time low—reason enough, one might have thought given their track record, for being a bit more bullish.

Kash