The dollar is largely held and controlled by the world central banks...for which over 60% are Asian holdings.... Thus the question becomes...why would one diversify from one currency to another....if it is only going to cost them money... If one holds 60% currently in the US dollar....and wants to move 10% of it over to the Euro or other currencies...and this in turn would cause even larger losses in the overall currency portfolio value...then why would one make the move ? Furthermore...the upward movement of currencies other than the dollar have already been moved by this diversification...This is where the recent move came from.... Very much like pushing on a string.... .................................................................................................. The dollar has already experienced an unprecedented decline versus other currencies....and the macroeconomic backfire of currency imbalances will soon be taking its toll on the other currencies recent advances... Furthermore....it is highly likely that this move is overdone... The reverse of the press wins reliably.....
Hello everyone, The Dollar will be a good buy, but not so soon. The Sub-prime debacle isn't over, infact the worst may still be yet to come. There are plenty of defaults "waiting in the wings" as the honeymoon period of low interest mortgage rates ends, and rates reset to levels which represent the risk/reward more accurately. Sub-Prime and Alt-A MBS were sold for much longer than the few months we've been having difficulties with them. Gold and Crude should see heavy resistance at the $850 and $100 levels respectively. Above these levels, the fundamentals just dont add up, and the speculators (driving these prices) will step away from such overbought levels. This makes a rate cut of at least another 25bp from the fed easier (less pressure from inflation). However, once rates are cut again and everyone has a better idea of just how bad the MBS situation is, the dollar begins to look attractive. Quite simply, is it unsustainable at such weak levels. Resurgence in the appetite for carry trades won't be enough to reign the dollar in once everyone knows how bad credit crunch is - The US economy isnt in a recession (e.g. new housing data has held up pretty well last time I checked), but the correction to the price of risk isn't over yet. I will add two caveats to this view (it's my mind, and I reserve the right to chage it!). If minnow states start to unload their US dollar reserves (unlikely but not impossible), or Christmas retail data is shockingly poor, I will accept that the case for buying US$ needs reviewing. Kind regards; 1st post etc... Gordon