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Monday, January 07, 2008

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.

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