It is not sufficient for a strong dollar that America does well; others must also be doing badly. “If theeconomy grows incredibly fast and nowhere else does, the dollar will go up,” is how Kit Juckes of Société Générale, a bank, puts it. The question is: can it keep going up and for how long? The dollar usually provokes strong feelings in the currency fraternity. It is either loved or hated. That is not the case now, which is remarkable. There may be a strong-dollar story.
The greenback’s bounce-back this year is more about interest-rate differentials. Here the story gets a little frayed. The interest rates that you would normally think of as mattering for speculative currency flows are short-term rates. But central banks are not for moving those soon. So bond yields have become a signifier, since they in part reflect the as-yet-distant tremors of moves in future short-term rates. Bond yields in turn are responding to growth expectations.
The dollar seems likely to rise a bit further in the near term. “There are a lot of stale short-dollar positions,” says George Papamarkakis of North Asset Management, a hedge fund. Speculators who have a bearish view of the dollar have already sold it short. If the currency keeps rising, they may be forced to buy it back. Another factor in the dollar’s favour is that risk appetite is less ravenous than it was. Equity markets are choppy.
Dollar always spikes in a crisis. Repo market fail this last year. This time looking tricky also. Why is the FED QE buying Tbills. Something that is already in huge demand anyway. This could create shortage hence dollar will rise as an inductor.
The dollar lost its value when people lost the value they gave to the dollar...
There is no greater joy than having financial stability and a life free of debts, that’s why I keep tweeting about sir gigsfridFx
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