US Dollar Rally Possible ?

While Bush find that the US economy has problems, here comes the view that the beleaguered dollar may rally back.
The foreign exchange market is not yet pricing in slower global economic growth, says Jim McCormick, head of currency research at Lehman Brothers in London. He says the main consideration in the market has switched from whether or not to be in carry trades to macroeconomic themes, as heightened concerns about a US recession, combined with the sharp slowing taking place in Japan and nascent signs of slower exports in Asia, make it clear the global economy is turning down.
“At the same time, the growing gap between easing swap spreads and rising corporate spreads suggests that while central banks have gained control of the extreme financial market stress, it has come too late to avert a significant slowing in growth.” The dollar, he concludes, “will eventually benefit as the weakness in growth spreads to other parts of the world”. But the economy troubles may be more due to misaligned current account deficit owing to bubbles in asset prices than to a misaligned dollar.

Labels: Emerging Trends, US Dollar, US Economy

The Contrarian View On The US Dollar

Every country that I get into and every casual conversation invariably leads to real estate price racing ahead and a sense of a potential USD fall down further. While it is evident that a shift to other currencies is taking place so the days of the all-dominant U.S. dollar could be numbered. There are some within the US establishment who think that by bullying some nations could be forced to keep the dollar peg. I was once speaking to a central bank head – who gave this view on currency peg. Make the investments of reserves proportionate to the trading share. Singapore now reports that the proportion of trace with china has increased vis-à-vis the US. When I read this piece by Marc Faber, it makes interesting reading:

I only find one depressed and universally despised asset class: the dollar. But a dollar recovery should not be ruled out. Monetary conditions and international liquidity have tightened relatively, not because of Fed policies but because of market-induced illiquidity in the US household sector. In the past, these conditions of relative tightening have been US dollar supportive, but negative for asset markets.
What should you do? Reduce your risk exposure. Sell emerging economies' stock markets and their currencies. For the next three to six months, shift money into short-term US Treasuries.

Labels: Emerging Trends, US Dollar