Is the US Dollar Reversing Course?

There are pros and cons for a weak Dollar. Its effects on exports and consequently the US GDP during these hard economic times are clearly a plus. On the flip side, it can be cause for inflation both within and outside the United States. Internationally speaking, countries with currencies pegged to the US Dollar have the most to lose.

As the USD deteriorates in value such countries lose relative purchasing power of their currencies and their economies can feel inflationary pressures. In recent weeks, however, the Dollar has been showing some signs of recovery, which has brought some relief to Gulf countries. "The strengthening dollar is good for the Gulf region because it will reduce the imported inflation in the region and it also increases the purchasing power of the regional currencies." said Monica Malik, Director of Economic Research, EFG Hermes, a regional investment bank.

The slowdown in Euro economies has been more than anticipated by policy makers and if continued such trends can strengthen the US Dollar even further. Good news for those Americans who were postponing trips to Europe for fear of big dents in their checking accounts.
"Both the dollar weakness and the interest rate cuts have been painful for the GCC countries, but now the worst is over. However, it is in the interest of the regional economies to have greater flexibility in monetary and exchange rate policies to meet the needs of the regional economies," said Malik.