Dollar Continues Decline While US Companies Post Strong Earnings

October 20, 2009

The AP reports, "The dollar resumed its decline Monday in New York as a handful of different U.S. companies posted better-than-expected earnings or said they expected improvements this year." The dollar's "low yield comes from the Federal Reserve holding the country's key interest rate at a range near zero, one of the lowest of the major economies, with warnings it will hold the rate there for some time." Against "a basket of six currencies that includes the euro, yen and Swiss franc, the dollar has dropped about 16 percent from highs in early March." Meanwhile, "the Dow Jones industrial average was up 0.9 percent in trading Monday."

Fears Of Deflation Persist As Economic Recovery Begins.
USA Today reports, "The housing market is turning up. The Dow Jones industrial average last week broke 10,000 for the first time in a year." But a "small cadre of economists remains worried about a more insidious threat: deflation." Concerns about "falling prices ran high last year. They've faded recently as consumer spending has stabilized, and many economists say the recovery likely has started." But Columbia University's Joseph Stiglitz, a Nobel prize-winning economist, "believes an extended bout of deflation is not only possible but likely." Stiglitz says "salaries are most relevant. Since hitting a recent peak in December 2008, real average weekly earnings have fallen by 1.9%." The drop "can be part of a vicious cycle. High unemployment...lowers wages" and "that, in turn, reduces demand for goods and services, forcing companies to cut prices." While "lower prices help consumers, they don't benefit the economy, damping revenue and prompting further pay cuts."