U.S. Inflation Rate Soared To 5.6% In July
The annual U.S. inflation rate soared to 5.6% in July - its highest in 17 years - according to recent reports. Rising inflation could force the Federal Reserve to start raising interest rates.
Interest rate cuts in Europe and a rate hike by the U.S. Fed could help strengthen the already-rising dollar. Rate hikes in the U.S. usually bolster the dollar because higher rates increase returns on dollar-based assets.
Going forward, analysts say that the dollar rally “could have some legs.” In a recent research report, Goldman Sachs analysts, led by Thomas Stolper, say the lows the dollar hit earlier in the year “are almost certainly behind us.”
However, an oil price surge, a decline in U.S. exports, or increasing signs of U.S. economic weakness could derail the dollar’s rebound, Goldman Sachs analysts say. For now, they expect the euro to fall to $1.45 against the dollar over the next three months, and even to $1.40 a year from now.
I don’t know about you, but I’m saving up for some Milan shopping in 2009.
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