Don't Panic Over the Dipping Dollar

Physician's Money Digest, August 2007, Volume 14, Issue 8

Concerns have mounted over the value of the dollar as the 5-year-old euro is set to surpass the dollar as the world's most popular currency as calculated by the Financial Times. The dollar has also lost 6% of its value to the euro and the Federal Reserve may be poised to lower interest rates while the European Union may raise them. All of these scenarios make it seem as though you should dump your dollar in favor of the euro. However, Money & Business warns the euro's currency popularity applies only to currency that is in circulation, not current dominated assets where the dollar is still number one. There also exists the possibility that the Federal Reserve may start an interest rate hike, thereby bolstering the dollar’s value.

Furthermore, 66% of global foreign currency reserves are still in dollars vs 25% for the euro. Foreign countries may continue to diversify their foreign currency holdings but "nothing is going to replace the dollar anytime soon" according to Robert Brusca of Fact and Opinion Economics. China also holds more than $700 billion in US government bonds and other assets and would not want to start a panic that would devalue its position. While the dollar may dip somewhat further, a full-scale dollar rout is not anticipated.