It has been losing ground to the Japanese Yen, Euro, and the British Sterling. What's the deal? When will this end? This is seriously screwing up my investment strategies.

Answer
The USD dollar is having problems for a couple of reasons. First, there is concern over the status of the US economy in general. We have a war going on that continues to ring up a large bill that will have to be paid by the US taxpayers sooner or later. We have a gazillion and a half baby boomers moving into their "golden years" that is predicted to put massive strain on already questionable social security and healthcare resources. And we have an consumer base that was heavily leaning on housing appreciation as a stimulus for the economy.

Now on top of that challenging set of circumstances we have an international community discussing the replacement of the USD as the primary trading currency in the foreign exchange marketplace. Remember all countries currently have to convert to USD to buy and sell oil and other commodities. What if this were to be slowly replaced with the Euro? or a new Middle Eastern currency like an Oily or some such? or what about the Yuan, rumor has it these guys are packing some serious weight these days.

Couple all this with a US political machine which is more concerned with "he said.....she said....partisan politics" as opposed to focusing on developing a sound economic foundation upon which our country can grow and self sustain......and you then have the most troubling situation for any Forex currency.....uncertainty!

That being said the US still has a lot going for us. The USD is not going to implode over night (at least I hope not). I have most of my clients currently positioned in long term hedging strategies that will perform nicely whether the USD goes up or down.

May all your guesses be good ones.

Paul

What's keeping the Chinese Yuan being overvalued against the dollar?

Say if it did devalue itself at last against the American Dollar,how would it help the American Economy,especially our manufacturers whom still do a lot of exporting?,Could it bring American jobs back? Re-stregthen wages even?

Answer
The Chinese Yuan is not overvalued, it is undervalued.

The Yuan is not a freely floating currency but it is actively managed within certain limits against the dollar, making it unofficially pegged to the dollar. The reason why Chinese are keeping their currency low (somehow stable against the dollar) and do not want it to appreciate against the dollar as it is supposed to be is that the US is their main customers and China is a mainly exporting country (like many others in Asia). If the Yuan appreciate it will make their stuff Americans and others import from them more expensive which will kill their competitive advantage and suffocate their development.

The Chinese central bank is able to keep the currency low because they heavily buy US treasuries to increase their foreign reserves of dollars (and do some forex interventions ...). However these policy will and is leading to increased inflationary pressures in China which will sooner or later push their currency to appreciate.

Now, if China let its currency appreciate against the dollar, it is bad for Chinese as they will lose their attractiveness as a place with cheap labour and materials. But that does not mean jobs will come back to America. It is safer to say that in this situation, jobs will just move to another cheap-labor country (Vietnam, other African and Asian countries ...). Worse, if China let's its currency appreciate and/or loose its export competitiveness it will be even more devastating for the US. As the Yuan appreciates, it means that Chinese will not need to manage their currency anymore, that means that they will stop buying US treasuries and selling a big amount of what they are holding. We are talking about probably hundreds of billions of dollars worth of bonds which the Chinese will want to get rid off and redeem. The US will have to find the money to pay back Chinese for all these bonds (the money that we do not have) and will need to issue more bonds that nobody will want driving bonds costs (interests and yields) to the stratosphere and the US treasury to immediate bankruptcy.

Be careful what you wish for.

I believe that it is already too late that this will be solved without a major crisis. And it is all our fault. Nobody put a gun to our head and foreced us to offshore our jobs, isn't it?

EDIT: Sorry 'What?' I didn't see you already gave the answer.