11/7/07

Frustration has been taken to a new level for all Americans in London this morning as the pound climbed to $2.10, the highest its been since 1981.

Title of Article: Dollar hits 26-year low against pound
Date: 11/7/07
Source: The Guardian

Just when you thought the exchange rate of the dollar against the pound couldn't get any worse, it has. By 10:30 this morning, one pound was worth $2.1053. This can be compared to January data when one pound was worth $1.96. The dollar, which has been weakening for several weeks, also hit a new all-time low against the euro; one euro is now worth $1.4703.

The weakening of the dollar may have been catalyzed by China's possible preparation to shift its foreign reserves out of dollars. China, as a result of their booming exports, now holds the largest reserves of foreign currency in the world, estimating around $1.434 trillion at the end of September. Cheng Siwei, vice chairman of China's National People's Congress, told a Beijing conference on Tuesday that China would "favor stronger currencies over weaker ones, and readjust accordingly." Xu Jian, a vice director of China's central bank, told the same conference that the dollar was "losing its status as the world currency."

Despite the power of China speculation, in general, the weakening of the dollar can be attributed to negative dollar sentiment, the slowdown in the American economy, the sub-prime mortgage crisis and the ongoing credit crunch.

As an American temporairily living in London, this is very upsetting, frustrating and unsettling news. Not only does everything now cost more than twice as much (which, by the way, does not make me, my bank account or my parents happy at all), but this news also demonstrates the weakening of American dominance and power. America used to be the "go-to" country--if you wanted to find a better way of life, you'd move to America; if another country needed help, they'd ask for America's help. The value of the dollar used to be so strong against the pound; now it's close to being one of the weakest of any developed country. I don't know how else to describe it, but I'm very worried about America's future. Will we be superseded by another country in dominance and power? Will the dollar continue to weaken? Will America as we all used to know it be a permanent thing of the past? Perhaps our economy will rebound and regain it's powerful status, or maybe these fears will come to fruition. I hope the latter is not the case, but only time will tell what happens to the power of the dollar and the status of America.