80 is an important support area, which goes back to early
and mid 90-s, and even 80-s. A break is not guaranteed.
Hopefully, it never happens, but the fundamentals are sure
against that! The dollar drop to 80 happened as foreigners
bought a lot of it, not sold it. They want to unload, because
their dollar assets are underperforming, but they are
afraid to, since their economies depend crucially on
exports to the US.
Some rat will abandon ship first, then a bunch of rats will
follow. To hold things as they are, the Fed may have to
raise and print, and print more than raise. This will
support the economy, and higher rates will put some support
under the dollar. That's what they have been doing. I don't
think there is a real way out now, except postponing the
inevitable, but who knows! Unfortunately, if the trade
deficit stays high, pretty soon all World savings will
not be sufficient to hold the dollar stready, because of
the rising interest payments to foreigners. Their hope
was that the trade deficit would decline as the dollar
dropped, but that did not happen. |
