U.S. Dollar

Currency Exchange Rates and Your Investments: What You Don't Know Can Hurt You

You may be facing immense foreign-currency risks in your investment portfolio - and not even realize it.

If that's the case, don't feel bad: You're not alone.

The reality is that most American investors have no idea that currency exchange rates directly affect U.S. corporate earnings, this country's stock market, or the growth rate of our economy.

The bottom line: These investors don't realize that they face some pretty major foreign-exchange-rate exposure in their investment portfolios - as well as with the individual stocks contained in those portfolios.

This exchange-rate exposure can be accompanied by some pretty major risks. Understanding how currency fluctuations can enhance or destroy corporate earnings, the export sector and the U.S. economy, and even your personal wealth will make you a smarter, better investor.

To understand how the currency markets are determining the fate of our economy, please read on...

Investors Flock to Gold and Silver on Recovery Worries

Investors worried about the global economic recovery pushed gold prices to fresh highs on Friday, marking the third time in a week the shiny metal set a new record. Silver also climbed to its highest price in thirty years.

Spot gold climbed above $1,282 an ounce in New York and London as a weakening dollar spurred demand from investors for wealth protection, while silver rose to $21.44 an ounce, its highest level since 1980.

Bullion, which usually moves inversely to the dollar, posted its biggest weekly gain since May as the greenback touched a five-week low against the euro.

Holdings in gold- backed exchange-traded products (ETP) reached a record this month as investors sought protection from financial turmoil and the prospect of slowing economic growth.

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Money Morning Mailbag: With Many Ways To Hold It, Investors Need To Get Their Hands on Silver

A couple weeks ago, Money Morning Guest Writer Jack Barnes examined the last major commodity to enjoy a true price breakout: silver.

Barnes detailed why silver is poised for a breakout, based on its current price surge underway in India, the price run up of gold - a leading indicator of silver prices - and the fact that the white metal has yet to set a new nominal record price in U.S. dollars.

Barnes outlined the actions investors should take to involve silver in their investment plans, offering three strategies: physical acquisition and accumulation, exchange-traded funds (ETFs) and stocks, and options on futures.

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What's In a Name: Can the U.S. Afford to Call China a Currency Manipulator?

It seems like every six months the debate over China's currency, the yuan, reaches a fevered pitch: The Washington bureaucrats threaten to label China a "currency manipulator" and Beijing threatens to dump its U.S. debt holdings.

Then, with the imminent approach of a major inflection point - be it a key international summit or major financial report - both sides grudgingly agree that a modest appreciation of the yuan would be mutually beneficial.

However, things could be slightly different this time around. China has routinely ducked calls to revalue its currency, and in doing so greatly agitated the West.

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Japan's Move To Push Down Yen Gives Its Exporters a Boost Against Global Rivals

Japan yesterday (Wednesday) intervened in the currency market for the first time since 2004 to weaken a surging yen that reached a 15-year high against the U.S. dollar - and the government intervention is expected to continue.

The Japanese yen hit 82.88 against the dollar, alarming the country's officials who are worried that the rising currency would cut into exporters' profits. The yen had risen more than 11% since mid-May.

"We can't overlook these movements that could have a negative effect on the stability of the economy," Finance Minister Yoshihiko Noda said Wednesday. "We will continue to watch developments in the market carefully and we will take bold actions including further intervention if necessary."

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Investing in Silver: Three Ways to Profit From the Projected Breakout

It's the last major commodity to enjoy a true price breakout, and it's already doing so in a foreign currency.

This commodity has yet to break out in U.S. dollar terms, although its breakout in India is a signal that it's time for U.S. investors to make their move.

I'm talking, of course, about silver.

Silver is trading at just under $20 an ounce right now. I think it could hit $50 an ounce by the 2012 presidential election, which would represent a 150% move from here.

Clearly, the "white metal" can be a major profit center for your portfolio during these uncertain times. Let's look at the strategy that I've put together for you to reap that gain.

For a look at the author's detailed silver strategy, please read on...

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What to Expect on Wall Street as Nervous Investors Navigate a Slowing Economic Recovery

Wall Street was hit hard last week with gloomy data that has kept buying interest stalled and investors spooked over a slow economic recovery.

Stocks slipped over the past week after investors learned from government reports that jobs are getting scarcer than straw hats in a wind tunnel, and it isn't always sunny in Philadelphia. 

The big-cap indexes lost around 1%, while safe haven assets like gold and the U.S. dollar were buoyant. The best investment around for the week was the U.S. long bond, up 2%.

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To read what’s in store after last week’s gloomy data, click here

China Dumps the Dollar as Yields Sink

China cut its holdings of Treasury notes and bonds by the most ever in June, instead favoring the debt of Europe, Japan and Korea. The move has fueled speculation that plummeting U.S. yields are driving away the Asian giant, which has ambitions for its currency, the yuan, to replace the dollar as the world's main reserve currency.

China's holdings of long-term Treasuries fell by $21.2 billion in June to $839.7 billion, a U.S. government report showed recently. Total Chinese investment in U.S. debt declined 2.8% to $843.7 billion, the smallest in a year, following a 3.6% slide in May.

The shift comes as President Barack Obama increases U.S. debt to record levels, making it harder to finance sales to sustain the U.S. economic expansion.

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The Fed's Treasury Purchase Plan is Just Further Proof That It's in the Denial About the Dollar

This week's decision by the U.S. Federal Reserve to buy Treasuries in an effort to prop up borrowing is further proof that the economy is worse off than policymakers would have us believe. But more than that, the Fed's Treasury purchase plan is just one more reason for investors to anticipate inflation and take steps to protect their money from it.

In case you missed the news, here's what happened...

The Federal Reserve on Tuesday announced that instead of allowing proceeds from maturing mortgage bonds to disappear from its balance sheet, the central bank would take the "modest" step of using them to invest in new Treasuries.

In plain English, that means that the Fed is reinvesting into U.S. Treasuries the money it would otherwise bank from maturing mortgages.

Its goal is very simple: to keep long term interest rates from rising.

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Singapore's Economy Leads Asia's Rebound With Record-Breaking 2010 Growth

Singapore's economy grew at a record-breaking pace in the first half of 2010, boosting Asian economic growth that is outpacing the rest of the world.

Singapore's Ministry of Trade and Industry reported yesterday (Wednesday) that gross domestic product (GDP) grew by 18.1% in the first half of the year, expanding 26% in the second quarter from the previous three months, and 19.3% in the second quarter from the same 2009 period.

The rise is the country's biggest since record-keeping began in 1975.

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With "Risk Off" Trades Waning, U.S. Stocks Could Be Ready to Reverse Course

There are new signs that institutional traders are preparing for a change in direction of the U.S. dollar and European euro that may have big implications for U.S. stocks.

For months, the winning trade was to short stocks, the euro, and commodities, while buying gold, bonds and the dollar. Commentators labeled this the "risk off" trade since gold and bonds were seen as safe-haven assets. But when crowd mentality is at work, and sentiment - not fundamentals - is driving the bids, there really isn't such a thing as a "safe" trade. It's all speculation.

Take yesterday (Tuesday), for example: After surging 131 points, or 1.4%, out of the gate, the Dow Jones Industrial Average relinquished most of its advance to close just 16 points higher at 9,702.98. Meanwhile the Standard & Poor's 500 Index, which had climbed 1.5% to 1,038 in early trading, ended the day just 0.18% higher.

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Question of the Week: Readers Respond to Money Morning's Question on China's Currency

After months of intense political pressure, China last week announced that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.

"This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the United States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

Chinese domestic consumption stands to benefit the most, as consumers will have more purchasing power on top of China's recent wave of multi-industry wage increases. Western companies that reach out to Mainland China can access a consumer base with more money and an increased desire to spend, which should give Western investors a chance to cash in on climbing profits.

However, not everyone will see immediate benefits from the new currency policy. In fact, the combination of big double-digit wage increases in China and an increase in the yuan will reanimate inflation.

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Dollar Bulls Retreating From Bets Against Euro

The biggest surge in the value of the U.S. dollar since 2005 appears to be waning, as traders retreat from bets against the euro and other currencies.

Futures traders at the Chicago Mercantile Exchange are in the process of unwinding record bets that the dollar will rally against other currencies.

The number of contracts hedge funds and other large speculators hold betting on a rise in the dollar versus other currencies declined by 70% to 49,335 in the week ended June 22 from a June 8 peak of 163,085, according to an analysis of Commodity Futures Trading Commission data conducted by Bloomberg News.

With concern that Europe's fiscal crisis will cause a nation to default easing, the Dollar Index - which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona - is down 3.5% since June 7.

Money Morning Chief Financial Strategist Keith Fitz-Gerald thinks there may be an opportunity to cash in on the dollar's recent weakness in view of the increasing flows of capital into Asian markets.

Read More…

We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation?

After months of intense political pressure, China announced Saturday that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.

"This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."

Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the Untied States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.

Read More…

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