What Forces are Moving the Dollar?

In the past year, the U.S. dollar has declined against virtually every currency and commodity. Will the dollar continue to decline, or is the dollar's recent rally the start of a trend? The U.S. dollar index was over $88 in June 2010. The index currently has a value just over $75 and reached its all time nominal low earlier this month when it approached $73. Over the same time period, gold went from a value of around $1200 to about $1500 and silver increased in price nearly 77%. Oil is up roughly $30 per barrel and coffee has increased almost 98%. However, since May began, the dollar has strengthened against other currencies and commodities have sold off. George Soros recently abandoned his gold holdings and congress has thus far been unable to raise the debt ceiling (and thereby stop the expansion of the government's debt). Where does the dollar go from here? If the Federal Reserve's policies of quantitative easing have weakened the dollar as Howard Richman suggests, then the scheduled end to QE2 in June may strengthen the dollar, or at least stop its decline against other currencies and commodities. Still, many investing gurus remain unconvinced. Billionaire investor Sam Zell appeared on CNBC yesterday in an interview in which he expressed dire concern over the continuing debasement of the U.S. dollar. Zell told CNBC's Maria Bartiromo that he was concerned that “we're printing money at a staggering rate. It all comes down to how much longer is everybody going to be willing to take a depreciating currency. The concern is still there. We have to address the debt issues. The falling dollar is a vote of no confidence of the government of the United States.” Zell's statements Monday echoed similar sentiments he expressed in March. That month, Zell said “I think you could see a 25 percent reduction in the standard of living in this country if the U.S. dollar was no longer the world's reserve currency.” Last week, Bloomberg reported that Jim Rogers—Soros' former business partner and noted commodities expert—called the U.S. dollar a “total disaster.” Rogers went further, criticizing Federal Reserve Chairman Ben Bernanke and his management of the Fed's balance sheet. According to MoneyNews, Hedge fund manager John Paulson called for gold to approach $4,000. Paulson is famed for having correctly bet against the collapse of the housing market. Yet, if traders had followed the advice of Zell, Rogers, and Paulson, they may have lost money in the month of May. The ETF PowerShares DB US Dollar Bullish Index UUP is up and SPDR Gold Trust GLD is down since the beginning of May. As the value of UUP corresponds to the value of the U.S. dollar, and gold has been thought to move inversely with the dollar, traders might consider these ETFs as ways to play a change in the dollar's value. With numerous conflicting forces, it will be interesting to see what direction the dollar trades in the coming months. Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.