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It's a little more complicated than that. Inflation usually leads to increased interest rates, which usually makes a currency more desirable (and typically increases its value). Most economic indicators are "good for economy = good for currency", but inflation is counter-intuitive.
I think the current situation is less the dollar gaining value and more the other currencies losing value. There are a lot of non-US banks in deep trouble too, and there are plenty of bad mortgages around the world.
A bunch of money has been moved out of banks (US and other), since banks are no longer considered as safe as they used to be. A lot of that money being put into US Treasury bills. The foreign money has to be converted to USD to buy t-bills, and that's also bullish for the dollar.
Hmmm, seems surprising... but actually has it´s logic, interesting that you mention the devaluation of the other currencies rather than dollars´ strength... plus, don´t forget to add the speculation factor... I loved the Joseph Stiglitz article in today’s Guardian
I think I see it... yes conunter intuitive is the phrase!
With $700bn at stake I cannot see the vested interests giving up in a hurry (I know I wouldn't!)...
So... assuming that the bill passes in substance (say they only get half a trillion dollars and a few meaningless restrictions on how the money is spent) how long will it take for the real effects to bite?
What will be the fallout for the dollar?
Does anybody really believe that this will affect consumers and the public in a positive way?
Interesting statistic over here in the UK - mortgage approvals down by 98% against last year. Frightening.
It has been rising long before this -
10-01-2008, 01:18 PM
It has been rising as of July 15
I would speculate several reasons, one is the housing market which doubled over the years, but in other countries has tripled and we see that US has been hit, and interest rates have been lowered, however I think we are now seeing a delayed reaction due to the housing markets in other countries which have tripled aka UK etc. and because the interest rate differential is still such UK 5.0 and US 2.0 so US does not have much to trim, however others countries such as UK 5.0 interest rates have not been hit as hard but I believe that people are counting on those interest rates to be lowered and so as other countries currency is also weakened against the dollar, I don't know for sure if the Dollar is actually strengthening, however I would speculate that it's more likely the other countries currency is weakening against the dollar which in essence is the same effect which is dollar shows as strengthening.
I'm no expert but this is what I've been reading.
Also there are lots of technical traders out there who trade from the daily charts and as a downward support level get broken such as the EUR/USD then these technical traders are prompted to sell currency and buy the dollar
Weekly support is also getting broke and prompting stonger dollar for technical traders.
See the daily charts of the EUR/USD and notice the downward waves, and a current Down AB, and now a C Fibonacci level high forming, this will prompt techinical traders to sell Eur/USD and be looking for a Break of the B low and continue to the D extension.
I'm a technical trader, however I'm a daily trader who trades 5min charts, but I'm aware of the technical analysis of these different levels.
Most technical traders trading the EUR/USD may be looking for a target of approx 1.3237 for the small (abcd) and next target of 1.2536 for the larger (ABCD)
Being watchful of support at B low of 1.3874 approx.;and if it breaks the B low at 1.3874 technical traders will be looking for those targets I've mentioned above.
I'm not sure I fully understand my own fundamental analysis above, but that is the general gist from what I've read, however I'm more familiar with the technical side.
Anyhow I hope this helps, and again I believe this is something to do with the delay in the housing/financial problems which is now become more apparent in the other countries
It's a little more complicated than that. Inflation usually leads to increased interest rates, which usually makes a currency more desirable (and typically increases its value). Most economic indicators are "good for economy = good for currency", but inflation is counter-intuitive.
I think the current situation is less the dollar gaining value and more the other currencies losing value. There are a lot of non-US banks in deep trouble too, and there are plenty of bad mortgages around the world.
A bunch of money has been moved out of banks (US and other), since banks are no longer considered as safe as they used to be. A lot of that money being put into US Treasury bills. The foreign money has to be converted to USD to buy t-bills, and that's also bullish for the dollar.
Yes, the perception is that the $ has already received its shock and others have not, so relatively speaking, there should not be as much risk priced in.
The time of the close correlation of the daily US equity markets and the $ are over. The equity markets will continue to try and be the long future indicators, but since it is not relative to foreign performance the way the $ is, they will act very differently, at least in the short term.
Is'nt it,that these insane spikes in the price of oil have far less to do with supply and demand of OIL than they have to do with the supply and demand of DOLLARS?
Why is the US$ rising? -
09-30-2008, 04:30 PM
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