Long term, the dollar is not a good bet unless the US increases its savings rate and reduces its current account deficit considerably. Monetary easing and fiscal stimulus only exacerbate the problem.
But never forget the Wall Street saying, “Don’t fight the tape.”
From Bloomberg:
Ben S. Bernanke’s decision to lower interest rates 1.25 percentage points last month will end the dollar’s two-year slide, according to the world’s biggest currency traders.
For the first time since 2003, investors are focused on relative growth prospects rather than absolute borrowing costs, according to Geoffrey Yu, a London-based strategist with UBS AG, the No. 2 trader. The steepest cuts by a Federal Reserve chairman in seven years will support economic growth in the U.S. as Europe slows, said BNP Paribas SA, the most accurate currency forecaster Bloomberg tracks. The dollar will gain at least 9 percent against the euro this year, UBS and BNP predict.
“We’re not chasing dollar weakness any lower,” said Robert Robis, a fixed-income manager in New York at OppenheimerFunds Inc., which oversees $260 billion. “The Fed’s actions have avoided a long recession and we may start to see a recovery later this year.”…
Futures traders cut the value of contracts benefiting from a drop in the dollar to $13.9 billion as of Jan. 29, according to Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. bank by assets. That’s down from a record $32.3 billion in November….
While two Fed cuts slashed the target rate for overnight loans between banks to 3 percent in nine days, the European Central Bank kept its benchmark rate unchanged at a seven-year high of 4 percent in an attempt to curb inflation. The ECB will keep rates unchanged at its Feb. 7 meeting, according to all 55 economists surveyed by Bloomberg News.
“If aggressive cuts by the Fed can stimulate the economy, then the U.S. will definitely lead the way in terms of economic recovery,” [UBS strategist Geoffrey] Yu said. “The ECB is behind the curve, so it’s time to move back” into the dollar, he said.
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If the ongoing rate cuts create a dollar carry trade, it will hurt both the dollar and US stocks, and the Fed will quickly cry uncle. The fundamentals haven’t changed a bit: jobs and housing prices are not picking up anytime soon, the recession has only just begun, and recent foul weather in China means that they’ll be exporting an extra dose of inflation.
The financial markets have become a joke. I mean this is a guy who HEADS strategy fx. Unreal. Yeah cutting interest rates solves the problem. Wall Street has become a conduit unto itself and a zero sum wealth “creator” for the financial economy at the expense of the real economy. We are heading for a complete disaster and the more you read this moronic commentary the more you realize that never has there been a better time to sell. Rotten to the core.
This guy thinks rate cuts are going to fix insolvency? Is this guy nuts or is he pitching snake oil? Only adds to my conviction that we ain’t anywhere near the bottom of this mess.
This guy is an idiot. Over the long term the dollar is toast. Sell dollar denominated bonds. Now! Remember, Uncle Sam is. Think about that. I wonder if Ben Stein channels this fool?
Big money moves the markets & the economy — that’s the point of the article — big money says the dollar is near a bottom, whether economic reality supports the position or not won’t be known for months to come. The author is simply providing a data point on dollar futures, pointing this fact out. It doesn’t matter what u think the dollar, markets or economy should do, the only thing that matters is the tape. Think twice before selling dollar denominated assets at this juncture. If the fx traders are right, short oil & gold.
“big money says the dollar is near a bottom”
Yup! And big money said, no later than in 2005, that the growth in the housing market was expanding “as far as the eye can see”.
A bottom is like a trend: you see it after the fact.
“We’re not chasing dollar weakness any lower,” said Robert Robis, a fixed-income manager in New York at OppenheimerFunds Inc., which oversees $260 billion. “The Fed’s actions have avoided a long recession and we may start to see a recovery later this year.”…
ROTFLMAO!!!!!
What a complete moron!