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US dollar falls to 5-month low against euro

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On Wednesday, 21 November 2006 the Bush administration released revised economic numbers and projections for the upcoming year. Reaction in the world market resulted in a loss of the U.S. dollar purchasing power against 14 of the 16 major world currencies, with a spike to a new 5-month low against the euro.

In June, the administration has released data and projections claiming that the American economy would see a growth rate of approximately 3.6% during 2007. The number was disputed in numerous circles, including the Bank of Canada, which projected 3.0%-3.2% as more realistic.

Unemployment benefit claims have remained largely steady. However, there has been a small increase in levels of unemployment recently. Several tens of thousands of American workers have been laid off in several industries during the course of the year. This is especially true for factory, construction, automotive manufacturing and technology production jobs.

This week, projections of U.S. growth were revised downward to 2.9%. Increased energy prices, a slowing housing market and expenses related to the Iraq conflict are all being cited as contributing factors. The Bush administration's Council of Economic Advisers cited only the slowing housing market, but the size of the downward revision cannot be accounted for by the housing market alone, according to economists.

As of markets on 22 November, the dollar slid to $1.2941 per euro at 11:07 a.m. in New York, from $1.2844 the previous day. The U.S. currency is at its lowest since 05 June, when it touched $1.2979 per euro. The dollar dropped to 116.55 yen, from 117.92. The euro traded at 150.82 yen, from 151.46 yesterday and a record high of 151.67 reached on Nov. 20.

The Japanese yen gained about 1.2% today, the biggest increase since April 24. The yen has been somewhat undervalued during most of this year, according to financial experts. Increase in its value is seen as an expected correction, having dropped 7.5% against the euro this year.

The University of Michigan's final index of consumer sentiment slipped to 92.1 from 93.6 in October. The measure has averaged 88.1 since monthly data were first compiled in 1978. The Michigan index was expected to slip to 93.3 in November from the previous month's final reading of 93.6, according to the median estimate of 57 economists in a Bloomberg News survey.

For people traveling to the United States, this presents an unusual opportunity for their foreign currency to experience increased buying power. Persons should carefully study which currencies they might convert based upon such speculation. Some will have more favorable conversion rates than others.

Actual dollar inflation in the U.S. retail market has been normal, but the dollar has lost approximately 10% of its value against many world currencies in the past two years, most of it this year. This can translate into nearly a 10% increase in buying power when foreign currencies are converted into buying power in the U.S. market.

The Federal Treasury will meet next on 21 March to decide if it will adjust the Federal overnight loan rate. Currently it stands at 5.25%, after 17 consecutive increases over the past years. This may be the first time that it will be lowered in close to three years.

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