US dollar could drop by 10 percent, says Canadian report

September 27th, 2008 - 9:39 am ICT by IANS  

Toronto, Sep 27 (IANS) A Canadian bank report says the US dollar could fall as much as 10 per cent in the “near to medium” future.In its report titled `Will the US dollar go the way of the British pound?’, the Toronto Dominion Bank (TD Bank) said Friday that the US government decision’s to help the financial sector through a huge debt will further push down the dollar.

“We estimate a potential 10 percent or so drop in the value of the dollar in real, broad terms in the near to medium term,” the report said.

Since 2002 when the greenback began its downward journey against major global currencies, it has fallen 41 percent against the euro and the Australian dollar, 34 percent against the Canadian dollar, and 24 percent against the pound.

However, “despite the erosion in its value over the years, there is little evidence to suggest that the US dollar has gone much beyond “the level deemed to be supported by economic fundamentals,” the report added.

“In fact, the decline in the value of the US dollar has been part of a long-term structural realignment in its value, and as such there is little misalignment in the current market value of the dollar relative to its equilibrium fair value,” it said.

However, the US administration’s decision to bail out the financial sector in a bid to clear up bank balance sheets and restore confidence in the financial system will certainly put downward pressure on the US dollar, the report warned.

Though the US dollar’s long-term prospect as the global currency of choice remains relatively safe, the Canadian bank report said, “This will hinge crucially on the evolution of the current global savings/investment imbalances, and the success of other currencies in providing viable alternatives (or complements) to it.”

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