To: LTK007 who wrote (23349 ) 8/18/1999 8:14:00 PM From: pater tenebrarum Read Replies (2) | Respond to
Max, the factors driving the dollar are: economic growth rates, interest rate differentials and the trade balance, and the market is completely irrational as to which one of these factors takes precedence. for instance the trade deficit usually worsens when the economy is red hot...right now it seems that the market has decided to focus on the fact that the Japanese recovery seems to gather steam, and that U.S. growth is likely to slow due to the Fed having embarked on a tightening cycle. when the market is in this mood, the trade deficit, which has been largely ignored so far, suddenly becomes deserving of attention. this theory will be put to a test tomorrow, when the trade data are released. my prediction is that a higher-than-expected deficit will lead to a renewed slide in the dollar, as it would be indicative of continued above average demand in the U.S. which in turn would argue for the Fed to continue on it's tighter monetary course which in turn would mean that growth would likely slow in the future, which in turn means that capital should flow to where-ever growth is about to accelerate, i.e. Japan.
