Interest Rates Have Nowhere to Go but Up/The Bull Market Takes a Hit

Since last February, when the world's leading finance ministers agreed to promote stability in the currency markets, the US dollar has behaved fairly well. However, that period of relative calm has come to an end as economists now predict the US dollar will fall an additional 5%-10% against other major currencies. The reason for this is June's $15.7-billion trade deficit. The disappointment over trade comes at a sensitive time; Congress will soon return from its summer recess, and protectionist legislation heads its agenda. Enactment of a trade bill may now be more likely, and that would cause further pressure on currencies. With both Japanese and German money supplies swelling above their targets, interest rates will likely rise in both countries. A weaker dollar and higher rates overseas would likely force US interest rates higher. In response to the growing unease, the stock market took its 5th-worst beating on September first, dropping 52 points.