"Dollar bears will be crushed" (I read it in some ET thread a few days ago). "Buffet will lose his shirt going against Bush". I read a lot of these "patriotic" comments (and maybe much more of those have been written by neo-con [neo-fascist] people waving flags, who I try to add to my ignore list asap, so I probably missed them) I don't trade currencies, but inevitably i watch them, as I'm in EuroZone and most markets I trade are in USA. So the fluctuations of my USD trading capital when converted back to home currency are substancial. So, who benefits and who loses from a depreciation of the dollar? In light of recent market action, here is my interpretation: 1. USA is a big debtor, both in terms of state debt (gov bonds) as well as household debt (MBSs). The holders of this debt are primarily non-Americans, namely Asian countries. The duration of this debt is quite short (by historical standards). Just the interest payments on the outstanding debt, even at the current historically low rates, will soon consume most of the US state's tax income. Most US households are loaded with debt, just to afford a regular home (those half-million-usd median house price things, courtesy of negative real interest rates during all these years). And rising interest rates are increasing their burden. Are incomes or employment in US rising significantly? All evidence (even the fudged gov statistics) say no. My opinion is that, if we take all factors into consideration, a WEAKER dollar (or even a temporary plunge of the dollar) would be a GIFT to the US debtors (state and citizens), because it would allow them to pay back their debt with "cheaper" dollars. And all actions (e.g. US pressuring China to revalue) are actually confirming that US wants a lower dollar. Even temporarily for 1-2 years. Even if it causes a small domestic recession in US. All evidence I see is that US is actively trying to inflate away part of its huge debt. Otherwise it would have to either default on it (like Russia or Argentina). Or the people in the USA would have to work for decades to pay it back, with interest (they'd have to work even harder to repay the debt, if the dollar becomes "stronger" in the future) Who loses BIG from a weaker dollar? The foreign holders of US assets, namely Japan and China, who take a big hit as a percentage of their GDP. Once they revalue their pegs. (hint: which US is pressuring them to do for some time!). But it was their choice to employ a mercantilistic policy, to subsidize their exports/employment, know-how transfer etc. So don't feel too sorry for them. So, I suspect that this last spike-up in USD, is being engineered by Asians holders of USD (mostly Japan) as a last-minute desperate attempt to maybe LIGHTEN UP some of their USD holdings and diversifyinto Euro/CAD/AUD/Gold/whatever, by 1) triggering the stops of all those leveraged hedge funds and 2) short EuroFX initiations of the trendfollowing funds. I know that trendfollowing funds initiate short positions in EuroFX and other currencies today. So maybe today 13-May-2005 is the day to hedge your USD holdings.