Year-End Review of Markets and Finance --- The Dollar: Forecasts of Falling Dollar Abound --- Drop Is a Matter of Time, Say Analysts, Citing U.S. Trade Picture
The dollar is headed down this year and will set new lows against the yen and possibly the mark as well.</br></br>That's the view of many savants in the foreign exchange market. They say it's only a question of whether the drop begins soon or the decline holds off until the second half.</br></br>They believe that lackluster U.S. trade results and, eventually, a slowing economy and receding U.S. interest rates will reduce the dollar's allure to traders and international investors. A lack of progress in reducing the U.S. budget deficit also could diminish foreigners' confidence in the U.S. and its currency.</br></br>Last year, the dollar surprised many analysts. Expectations at the start of the year were that the U.S. currency would fall sharply, continuing a decline that began in late February 1985. Many people assumed that after the October 1987 stock market crash, dollar stability wouldn't be an important policy goal and that the currency would have to keep falling to reduce the huge U.S. trade deficit.</br></br>The dollar did tumble to 120.25 yen and 1.5630 marks in intraday trading Jan. 4, 1988 -- its lowest levels since the modern exchange-rate system was established in the late 1940s.