A click of the above chart will show how several major currencies traded versus the U.S. dollar during 2007. Note that, by year's end, every single currency finished higher than the U.S. dollar. The Canadian and Australian dollars were the winners, buoyed by strong, resource-based economies, followed closely by the euro.
Two themes stand out from the chart:
1) Yen Strength - The yen spent much of the first half of 2007 weaker than the U.S. dollar, but finished in an uptrend. This upmove in the yen also corresponded to bouts of unwinding of carry trades and selloffs in U.S. equities.
2) U.S. Dollar Strength - Note how the last two months of the year showed U.S. dollar strength versus all of the currencies. As fears of economic slowdown become global, the U.S. dollar could continue to gain interest.
Interestingly, the two weakest currencies finished the year with relative strength. That is a dynamic I'll be watching closely during the early portion of 2008, as we tease out global concerns over inflation vs. economic weakness.
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