Weak Dollar for The Year

The US dollar which experienced a large decrease of value last year. And it was estimated that the dollar would show a bearish trend this year too. Goldman Sachs forecasted in a report of a foreign exchange market prospects, that the value of 1 dollar corresponded to 0.9532 Euro at the end of last year but it would decrease to 0.8929 Euro at the end of the year.

Since the dollar showed a sudden drop of 16.9% in 1987, it recorded the biggest drop of 9.6% last year after 15 years. Such the drop of the dollar was caused by a depression of US economy and increasing uneasy psychology on US market. Commerz bank of Germany analyzed that a complex application of a low interest rate of US and a depression of US stock market incited the decrease of the dollar. Because of bad economic conditions of US, investors preferred to the euro zone. It means there are more demands on Euro instead of the dollar.

The Financial Times (FT) of Britain reported on January 2, that the prospect which the dollar will show the bearish tendency in the new year can be grasped in an object economy index of US.

The consumer confidence index of December, 2002 published by The Conference Board, US on December 31, 2002 was 80.3 closed to the lowest level (79.6) after 9 months. FT said that it is because the consumers have decreased the consumption owing to the employment unrest and the debts of consumers have increased due to the high loan interest compared to the deposit interests.

In addition, the ministry of commerce, US published the report describing that orders of durable goods, industrial equipments and shipment largely decreased at the end of last year. Also, the external debts of US which were skyrocketed up to 25% of GDP of US last year, inflated the bearish tendency of the dollar. As the debts of US have increased and foreigners avoided a purchase of assets in US, it is continued to the decrease of the purchasing power on the dollar.

In terms of influences of the bearish tendency of the dollar on the domestic market, Jo Dong-Cheol, researcher of Korea Development Institute (KDI) forecasted, “The yuan of China and the dollar of Hong Kong are also expected to be devaluated because they are pegged to dollor. The Korea will be in disadvantageous position in a field of a light industry which Korea and China have a keen export competition. He also said, “Korea companies must take this opportunity to concentrate on a radical reform against practices depending on advantageous exchange rates.”

Ki-Tae Kwon kkt@donga.com