It’s because some investors imagine that the European and Japanese economies’ growth is expected to be much slower than even that of the US. Hence, the prospects for using the Euro and the Yen as alternative reserve currencies are also looking more dismal, or so the theory goes.
I have to admit, I don’t think this reason is as compelling as the simple fact that I wrote about previously, which is that we’re seeing a big round of “forced buying” (I love that phrase) of the greenback due to all the redemptions in hedge and private equity funds, etc.
The “first” reason for the rise in the greenback is that there are so many average domestic Joes and foreign governments buying US Treasuries and money market funds looking for a safer but still attractive place to put their money. This also makes the US balance sheets look more attractive, which apparently helps the greenback image.
You can see how all three factors so far depend upon the current circumstances and have nothing at all to do with Fed fundamentals – ie., how much debt the US has, how much of a trade deficit it has, and how many more dollars have been printed (and thus devalued) just as a result of the bailout alone (to say nothing of the funding of the Iraq war).
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Me,
It all very nutty that the US dollar is so strong in October given the huge US deficits. Current spike in Usd seems like a panic flight to Usd.
Double, I would agree with you…. they’re also calling it “forced buying” of US assets. I can’t tell you how many accounts I’ve read now where analysts (American and Canadian) are expecting a resurgent loonie once the US fundamentals are put back into the picture.
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