Grieg wrote:You have your terms mixed up. What you describe is not devaluation. Devaluation of a currency only occurs where there is a fixed exchange rate. Inflating the money supply (as you describe) results in depreciation of the currency not devaluation.
It is a mistake to follow the week to week fluctuations of the currency market and attempt to equate the relative strength of the currency with the overall health of the economy.
Thank you for the correction. Devaluation and depreciation got me confused, as after all the end result is exactly the same.
And you're right about the second thing also. In a ten year time scale, the dollar is back on track: continuing the depreceation. The last few months seemed to be an anomaly in the ten year trend. However, have you ever seen a 2-3% daily depreceation
of the dollar for a longer time? Yes, there has been quick changes before, but as far as I can see, dollar has never changed its value against other currencies in such a fast pace.
We have seen the bottom in the stock prices in the US. Cash is king when stocks are low, thus the dollars were scooped up from the market -> dollar gets stronger. Now that the money is back in the streets, rates are down and FED is pushing out more money -> inflation and depreceation. This will hold for the next 1-2 years until the next down rally of the stocks.