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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (21254)	7/8/2009 4:34:56 PM
From: maceng2	Read Replies (1) \| Respond to of 71454

Re GBP. From a link I posted earlier. /snip. As I noted in a previous answer, one of the key issues for the FX markets this decade has been a lack of uniformity in currency policy globally. One of the results of this has been the rapid growth of FX reserves in nations such as China, Brazil, South Korea and beyond. The managers of these reserves have, understandably enough, not wanted to keep all their eggs in one basket (i.e. the US dollar) and have looked to diversify their holdings of currencies and the underlying securities this money is invested in. One way to understand this is to note that FX reserves have grown from around $2,000bn at the start of 2002, to now stand somewhere approaching $7,000bn. Unsurprisingly, most of this growth came in emerging market nations (around 70 per cent if I remember rightly). Although not all of them report the make up of their reserves, for those that do the split is something like 60 per cent in the US dollar, 30 per cent in the euro, 5 per cent in sterling and the rest split up between the Japanese yen, Swiss franc and some higher yielding currencies. Crucially, FX reserves have been growing at a rapid pace since March (possibly an indirect function of QE in the US) and this fresh money has been desperately seeking a home. Europe, as we all know has more than its own fair share of problems (Ireland, for example), therefore encouraging managers to more actively seeking realistic alternatives. I would argue that sterling, for the past three months, has been that alternative. The question now is whether it will retain this status /end snip. So what goes up comes back down. He also suggests the Euro is overvalued. ft.com GBP's usefulness as an undervalued currency finishes at some point. The UK supposed recovery is non existent as far as I can see. Looks to me the USD has some room to maneouvre now in an upward direction. The Yen move has freed the USD from that pesky upper limit that has bound it this year. USD=97.0Y is where we can expect some significant downward moves of the USD against other currencies imho. kshitij.com btw, interested in what you think of that quoted FT data.