The U.S. dollar is on the comeback trail against the world's currencies, turning in dramatic gains in 1991 thanks to some new respect.
The frequently humiliated greenback has, for example, risen close to 20 percent in value when compared to the sagging German mark. Smart money is betting the United States will begin to show proof of solid economic punch at the very time many other world economies, such as Great Britain's and Germany's, are stumbling. World markets are already demanding more and more dollars.
Though the Japanese yen is probably the strongest major currency, there's no longer much of a spread between foreign exchange values. The gap between currencies has generally narrowed to minor differences of 3 percent to 4 percent.
Since the wide divergences in world currency values that characterized the mid- to late-1980s are not likely to continue in the 1990s, the advantages to American investors in buying foreign currencies and bonds are declining. Such investments won't be receiving a boost from the behavior of the dollar.
Americans traveling abroad should be seeing a greater semblance of order in costs. The higher-priced tourist locations will be expensive mostly due to the particular nature of their travel market, rather than currency valuations. At the same time, American consumers should be finding foreign goods more reasonable to buy here than in recent years.
"I believe the biggest currency surprise in 1991 will be the continued strength of the U.S. dollar, though it will continue to be a mild recovery rather than a major run-up," predicted David Puth, manager of foreign exchange for Chemical Bank. Puth, whose bank has been buying U.S. dollars, believes that, with government bonds offering 8.5 percent yields, a strong stock market and a strengthening currency, "an investor just can't go wrong here."
Only if the U.S. economic recovery turns out to be softer than many anticipate will we be approaching the peak of the dollar's value, said Nimrod Fachler, chief international investment officer for PaineWebber Inc. He expects a modest decline in the value of the dollar of 5 percent to 10 percent in 1992 in the long term.
"The dollar will be a moderate performer among world currencies, with the Japanese yen one of the strongest and some smaller currencies such as Spain's strengthening nicely," said Fachler. He strongly advises that investors who put money in foreign-currency mutual funds seek diversity through a multi-market fund that carries a mix of investments driven by a number of currencies. For example, he notes that a portfolio including numerous foreign certificates of deposit would considerably lessen currency risk.
"Big concerns in the current market include the political uncertainties of Great Britain and the United Kingdom, and we expect there will be no superstar currency through the remainder of the year," said Robert Sinche, portfolio manager for the Alliance Short-Term Multi-Market Trust, which invests in high-quality, short-term debt securities.
As previously mentioned, travel costs for Americans are no longer strictly at the whim of currencies.
"In Europe, your dollar will go a lot further this summer and fall in Spain, Portugal or Greece than in the Scandanavian countries, France or Italy," said Karen Tessel, a travel service manager with American Express. "Travel in Mexico and the Caribbean is generally a safe financial bet, though in any type of travel you'll pay considerably more if you stick simply with big hotels and their restaurants."
Tourists, once worried about currency valuations when they made plans, no longer seem as concerned, Tessel believes. The biggest problems involve countries such as Italy which have boosted prices simply because they're considered attractive destinations.