The dollar’s big comeback

Forget the slopes of Vermont this winter. How about the French Alps? As the economic outlook in Europe continues to dim, the euro has experienced a steep selloff. Its value has slid more than 12 percent in the last month alone, placing it at a relatively affordable $1.26 as of today. Just a few months ago, the price was closer to $1.60/euro.

On the flip side is a strengthening dollar. Oh wherefore, you ask. Who would put their money in the United States? Didn’t the Americans get us into this economic mess in the first place? And their financial system is still bleeding money, after all. True, but as The Economist points out: 

These reasons not to like the dollar are trumped by its enduring appeal as the world’s reserve currency. Jittery investors want to be able to turn their assets to cash quickly and America’s bond markets are the most liquid in the world.

And there’s an added advantage:

It’s easier to acquire dollar funding, which can be swapped into the desired currency of choice rather than source a willing lender of that currency in the first place,” writes Andrew Wilkinson, senior market analyst at Interactive [Brokers].

So whether investors want to hoard U.S. Treasurys like an acorn stash for tough times or ultimately deploy the money elsewhere, U.S. dollars have seemed like a good way to go. As a result, T-bill prices have shot up, driving yields down.

Maybe Jay-Z’s euro-fab predictions were a little premature? At the same time, many cheeky bloggers out there have recently pointed out that insurance premiums on U.S. government debt have been higher than premiums on McDonald’s debt. Translation: McDonalds is more credit-worthy than the United States? Probably not. Just another quirk of the markets, thanks to speculators. To be safe though, let’s all grab a Royal with Cheese and spend our bucks on newly cheap European ski weekends. Who’s with me?

Photo: FRANCK FIFE/AFP/Getty Images