just in in-tray
it is the correct explanation for recent dollar strength. there is a 'shortage' of US dollar in the Euro area banking system, which has trouble re- financing its dollar liabilities precisely because the ECB can not print dollars, and banks don't trust each other enough , so not enough available in the interbank lending market either (resp. only at horrendoous rates).
this is why the Fed has granted a $630 billion (!) foreign exchange swap line to the 3 major European CBs (ECB, BoE, SNB). after all, the Fed can not only not allow US banks to go under en masse, it can also not allow that to happen to any good-sized euro-area banks, due to their importance as counterparties in the international payments system. just as Credit-Anstalt's demise in the early 30's took down banks across all of Europe, especially in Germany, so would a collapse of a comparably important European institution nowadays, such as e.g. Deutsche Bank to name a behemoth, take down financial institutions across the world.
(as an aside, one scary thought is that DB's balance sheet is so large, that this bank may even be beyond the German government's ability to bail it out if push came to shove).
anyway, conclusion, the dollar rally is mainly based on this technicality, combined with the herding effect the recent trend has exerted on hedge funds (who collectively now hold a record dollar net long position in the futures markets, if one combines all currency futures positions). this latter phenomenon will be the rally's undoing once interbank lending stresses ease, as all those stale dollar longs will want out of the door at once.
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