Currency exchange rate is a measure of relative strength. I wouldn’t call it a two-edged sword, really - it is what it is - the free market determines the value of the currencies one vs the other. For what it is worth, I believe that the USD is heavily undervalued, or, EUR overvalued.
CNBC ran an interesting segment they called the ‘iPod’ index, i.e., what is a price of an iPod in USD in various places in the world. There is absolutely no reason what so ever, that an iPod should cost $99 in the US, and $150+ or so in Europe. It is a commodity gadget, extremely widely available. So why the surcharge ? That, to me, represents a system out of balance that will correct itself - either EUR will go down, or the USD will strenghten.
But none of it is of much concern, unless you’re thinking about going to vacation to Paris.
The worst thing about a weak dollar is that the price of oil goes up.
Nice post.
But, for an investor, there is opportunity, and risk here. I agree wtih you, the dollar is no doubt grossly undervalued. In 94 this same thing happened and foreign markets got hammered, and the US stock market, bond market, and currency began a long rally.
Funny, at FR I never see people question the why of the USD being low. I think it is econ warfare by other countries against us, as well as speculators playing games, some of them with massive war chests like soros and buffet who are both admittedly short the USD and long the euro, oil, etc...