
After finishing 2004 at a record low of 1.3670 dollars against the Euro the greenback has managed to build up an impressive rally that propelled it 10 percent upwards to a seven-month high of 1.2306 dollars.

Against the Yen the US currency incrased 7 percent, with the dollar trading up from 101.65 Yen to a high of 108.80 Yen, before correcting to 104 Yen and recovering again to today's level of above 108 Yen.

The Euro could not hold on to its gains against the Yen seen this spring and plummeted lastly almost as strongly as to the dollar.
I call the three curencies the three big ugly ducklings for the following reasons.
US Dollar:
- Current account deficit
- Trade deficit
- Budget deficit
- Inflation fears
- Slower growth
- Budget deficits
- Political worries
- Unemployment
- Inflation fears
- Slower growth
- Budget deficits
- Stagflation
- Chinese competition
- Demographics
- Dependence on energy imports
What has changed the picture the most is the new threat to the Euro that the European constitution will not come into effect. If the Dutch will reject the constitution on Wednesday the common currency is likely to be hit again.
A weaker Euro will in turn burden Europe's economies because of higher commodity and especially oil prices through the exchange rate effect.

Crude oil climbed past the 51.50-dollar mark today. But this effect will hit Japan and the US as well as Europe.
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