The dollar staggers
	International Perspective – May 20, 2002
	Anne D. Picker, International Economist, Econoday

Last Weeks Highlights

All equities indexes followed here rebounded last week with the exception of the Singapore straits, which barely declined. Overseas equities, which closely track U.S. equities, were encouraged by positive performances from both the Nasdaq (up 8.8 percent) and the Dow (up 4.2 percent). The strength of the U.S. economic rebound is still in question as is the strength of the dollar, which continues to weaken. Also a worry is the relatively high valuation of U.S. shares compared with those in Europe and Japan.

Investors are now focusing on problems they had recently ignored. The large current account deficit, which doesn’t seem to bother too many analysts in the United States, is of special importance to overseas analysts. The deficit did not narrow significantly during last year's economic slowdown, mainly because consumers continued to buy. Now worriers are concerned that it could widen significantly during the recovery as consumers and businesses pick up the tempo of overseas purchases. The ability to finance the deficit has depended largely on the willingness of overseas investors to buy U.S. assets. This was not a problem in the late 1990s when the United States had a much more vibrant economy and stock market than either Europe or Japan.

But September 11 and the collapse of Enron have eroded investors’ confidence. Open to question are old assumptions that the United States is a political safe haven and home to the world's highest accounting standards. The U.S. war effort and where it will lead continues to be one of the biggest uncertainties in investors’ minds.