NEW YORK — The stock market is in shambles, credit markets are squeezed and corporate earnings are cratering. But the U.S. dollar is making a comeback.
As economies from South America to Asia totter, investors desperate for safe assets are plowing money into the battered buck — helping it snap a six-year slide and reclaim its status as a stable asset during rough times.
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"The dollar has become the safe-haven play," said Kathy Lien, director of currency research at Global Forex Trading in New York. "It's a pretty monumental move we're seeing."
But it might not be a good one.
Although a stronger dollar makes vacations overseas and commodities such as oil cheaper for Americans, it also makes U.S. exports more expensive. That could deepen the U.S. downturn by hurting companies from Boeing Co. to Caterpillar Inc. and Coca-Cola Co., which get a growing chunk of their earnings from overseas.
Still, the dollar's recovery is stunning. After reigning supreme as the world's dominant reserve currency for decades, the dollar began a steep decline in 2002, buckling under the weight of costly wars in Iraq and Afghanistan and an economy with an $800 billion annual trade deficit.
Falling U.S. interest rates this year sped up the dollar's decline until it took $1.60 to buy one euro at one point this summer. Shortly after the euro was introduced in January 2002, it took only 88 cents to buy one euro.
Now, suddenly, the buck looks safe by comparison. The economic pain spawned by the U.S. subprime mess has now crossed the Atlantic, roiling stock markets in Britain, France and Germany and punishing the euro and the pound.
The 15-nation euro this week fell to its lowest level against the dollar since April 2006 while the pound at one point last week lost a staggering 8 cents against the dollar — the biggest intraday move since exchange rates became free-floating in 1971.
The euro closed at $1.2967 in New York on Thursday.
Meanwhile, once-booming emerging economies are also slowing, causing big hedge funds and individual investors to funnel vast sums of money out of countries such as India and China and into the relatively low-risk dollar.
The stampede into the greenback reflects a "crisis of confidence," Lien said.
Although the U.S. economy by no means is showing signs of a recovery, Lien said other countries are "just beginning to feel the magnitude of the global slowdown, whereas the U.S. is maybe three-quarters of the way through."