Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (48908)	4/23/2004 6:16:22 AM
From: elmatador	Respond to of 74559

"dollar's rise is a sign of how much speculative traders, rather than economic fundamentals, can determine short-term currency movements." The Arabs are ENRONING the oil price to weet Bush's campaign. See my yesterday's posting. Jay, it is all part of Bush's campaign. Wait for the time to pay the time. Wait! A great trade reverses By Philip Coggan, Investment Editor Published: April 22 2004 11:22 \| Last Updated: April 22 2004 11:22 Why has the dollar been so strong in recent weeks? It is certainly not what most people were expecting nor what the world economy "needs". The biggest imbalance in the global economy is the US current account deficit and that will only be remedied by a declining, not a rising, dollar. Nor, I suspect, will the rebound in the dollar be welcomed by the Bush administration. A weaker currency seemed to be helping to revive the US manufacturing sector, a trend that was helping to shore up the President's hopes for re-election in November. Only the Europeans will be rejoicing given that the strong euro was exerting deflationary pressure on their already struggling economies. The downside is that the falling euro may obviate the end for a cut in interest rates and may reduce the pressure for economic reform. But to go back to the opening question, why is the dollar rising? It could be that investors are becoming more optimistic about the US economy and thus are finding US assets more attractive. That is possible, although there has not been a significant rise on Wall Street to give weight to the theory. It could be that higher bond yields are making US assets more attractive. But, of course, if they were buying bonds that would be forcing yields back down. I suspect the rationale for the dollar's rise is all to do with speculation about higher US interest rates. Sometimes higher rates give a currency yield support (although, more often, they are a sign of weakness). But I don't think that's what's happening now. Instead, we are seeing a reversal of one of the great trades of the last year or so; borrowing in dollars to invest in higher-yielding assets. With the dollar yielding 1 per cent, and heading inexorably downwards, this trade appeared a no-brainer. But such leveraged traders are quick to cut their losses at the slightest sign of trouble. If US rates are set to rise, then they will want to unravel their positions. That means buying back the dollars they have borrowed. And once some people started to do so, others would have been forced to follow suit, since their dollar positions would have been losing money. The dollar's rise, therefore, is a sign of how much speculative traders, rather than economic fundamentals, can determine short-term currency movements.