Passage of Obama's Stimulus Could Drive the US Dollar Down

In the face of a steady rush of bad news coming out of the US, the Dollar has strengthened considerably against major world currencies over the past two months. If you take a look beyond our borders, you'll see that the economic crisis is indeed world-wide. The adage is: When the US catches a cold, the world ends up with the flu.

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EUR/USD (:EUR-USD) Intraday | 3 Month | 6 Month | 1 Year Data as of 02/05/09 07:56 PM EDT Last Trade $1.28 Change (%) 0.00 (0.00%) High 1.28 Low 1.28 Volume 0 Exchange Quotes delayed at least 20 mins.

So despite an ailing economy, rock-bottom interest rates and a banking industry on the brink, the US Dollar (USD) has been attractive enough to foreign investors to gain back some value it had lost over the past five years. The dollar has traditionally been a safe-haven of sorts when world economic conditions are shaky.

But don't expect that to continue if President Barack Obama's $900 billion stimulus package gets the thumbs up from Congress. Passage of the bill would make the greenback less attractive than other major currencies in a whirl-wind world economy.

Congressional Democrats, at the push of Pres. Obama, have a bill in voting stages to spend another $900 billion to stimulate the flailing American economy (Can you expect this new stimulus to help? Read about the Broken Window Fallacy for more).

Should this pass, it may be a major enough factor to disrupt the current trend of the US dollar against the other major world currencies. Flooding an economy with large amounts of debt drives treasury bond prices down, and could trigger an exodus from US bonds as a safer investing instrument.