{"id":14651,"date":"2011-08-29T10:15:07","date_gmt":"2011-08-29T14:15:07","guid":{"rendered":"http:\/\/www.thedisciplinedinvestor.com\/blog\/?p=14651"},"modified":"2016-09-20T09:14:40","modified_gmt":"2016-09-20T13:14:40","slug":"the-u-s-dollar-is-a-buy-so-the-calculations-and-experts-say","status":"publish","type":"post","link":"https:\/\/thedisciplinedinvestor.com\/blog\/2011\/08\/29\/the-u-s-dollar-is-a-buy-so-the-calculations-and-experts-say\/","title":{"rendered":"The U.S. Dollar is a BUY (So The Calculations and Experts Say…)"},"content":{"rendered":"

By most “standard” calculations, the U.S. Dollar (USD) is undervalued by close to 20%. Using the Effective Exchange Rate methodology, the USD may be due for a rise in the near future.<\/p>\n

However, even with the recent market slide and persistent worries over potential defaults within the EuroZone, traders have been avoiding the USD to a point where it is close to the lowest relative<\/em> value that has been observed in decades.<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

Calculation methodology:<\/strong><\/em> An effective exchange rate is a measure of \u00a0the value of a currency against a `basket’ \u00a0of other currencies, relative to a base date. \u00a0 It is calculated as a weighted geometric \u00a0average of the exchange rates, expressed in the form of an index. The effective \u00a0exchange rate indices for sterling and other currencies published by the Bank are based \u00a0on the method the IMF uses to calculate \u00a0effective exchange rates for a number of \u00a0industrialized countries.<\/span><\/p>\n

The weights used \u00a0are designed to measure, for an individual \u00a0country, the relative importance of each of the other countries as a competitor to its \u00a0manufacturing sector. The trade weights \u00a0reflect aggregated trade flows in \u00a0manufactured goods for the period 1989 to \u00a01991 and cover 21 countries. The base date for the index is 1990, and is set at 100.<\/span><\/p>\n

Now that additional QE appears to be off the table (or at least postponed for some time), gains on the USD may no longer be met with knee-jerk selling. If Bernanke and the team are discontinuing their support for a quick debasing of the currency, the safety net may have been pulled away.<\/p>\n

There was an interesting story that appeared in Bloomberg that may provide an additional argument for the potential for the USD to rise:<\/p>\n

The dollar is poised for its biggest monthly gain since May, reclaiming its status as a haven while Switzerland and Japan boost efforts to weaken their currencies. The U.S. currency has appreciated 1.2 percent in August against a basket of the developed world\u2018s nine most-traded exchange rates, according to data compiled by Bloomberg. That compares with a decline of 14 percent in the world\u2018s reserve currency from this time last year through July.<\/p>\n

Demand for America\u2018s assets is rising even though the Federal Reserve has pledged to keep its benchmark interest rate near zero through mid-2013 and Standard & Poor\u2018s cut the nation\u2018s credit rating from AAA. The two other currencies considered havens in times of financial and political strife — the Swiss franc and yen — are under siege by their governments and central banks after rising to records.<\/p>\n

“The dollar is a buy through the end of the third quarter,\u201d\u009d Nick Bennenbroek, head of currency strategy in New York at Wells Fargo & Co., the third-most accurate forecaster in the last six quarters as measured by Bloomberg, said in an Aug.<\/p><\/blockquote>\n

Currency forecast survey by Bloomberg:<\/p>\n

\"\"<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By most “standard” calculations, the U.S. Dollar (USD) is undervalued by close to 20%. Using the Effective Exchange Rate methodology, the USD may be due for a rise in the near future. However, even with the recent market slide and persistent worries over potential defaults within the EuroZone, traders have been<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[5,12],"tags":[284],"class_list":["post-14651","post","type-post","status-publish","format-standard","hentry","category-economy","category-markets","tag-currency","et-doesnt-have-format-content","et_post_format-et-post-format-standard"],"acf":[],"_links":{"self":[{"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/posts\/14651","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/comments?post=14651"}],"version-history":[{"count":0,"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/posts\/14651\/revisions"}],"wp:attachment":[{"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/media?parent=14651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/categories?post=14651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thedisciplinedinvestor.com\/blog\/wp-json\/wp\/v2\/tags?post=14651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}