It is not difficult to be bearish onward the prospects for the US economy these days.

It is not difficult to be bearish onward the prospects for the US economy these days. according to late May, consumer confidence was tailing distant from and there were clear signs that the housing market-long exerciseed as a virtual cash machine by means of US homeowners-was softening considerably. Continuing inflation touchs fueled in part by high bottom prices, were prompting Fed chairman Ben Bernanke to consider further interest rate hikes. With the relentles bourgeoning in the US trade imbalance showing no sign of abating, the dollar shrugg along the potentially beneficial effects of rising interest rates and continued its leisurely slide against in the greatest degree other major currencies.

While mostly agree that the dollar falling further is not alone a good thing but is inevitable, just about the solely people who want their have currency to rise against the dollar are tourists planning a trip to the US. There can be not many governments who view the landscape of their country's currency rising strenuously against the dollar with anything yet alarm.

Nowhere is this more apparent than in Asia, where many countries have been buying dollars at of that kind a rate that their combined foreign exchange reservations reach into the trillions. It's been a highly effective strategy for most and has helped hold their own currencies at relatively gentle valuations-and thereby prop up the dollar. In the proces allowing China and other Asian nations have painted themselves into a self-same tight corner. They are to such a degree heavily invested in the dollar that any decline will sumptuousness them dearly. They know, however, that a decline is almost inevitable, and the longer they restrain onto their vast dollar withholds the more any slump in the greenback will damage

Those nations have essentially placed a gigantic bet forward the global currency markets. Their bet is effectively that a sharp decline in the dollar would be for a like reason disastrous and chaotic that the world s monetary authorities would step in to hinder it happening. Looked at from another perspective, however they are acting like investors who continue to send good money after bad in the reliance that their initial conviction will cast out to be correct. They have been trying to call the markets broad and full feverishly buying something that was already overvalued in the trust that their buying pressure would help sustain the value of their investment.

The question is that buying pressure alone will not be enough to interrupt the dollar slumping further. And, unlike the gambler forward a losing streak at the poker table, their vexed questions can't be solved by turning up a favorable card.

Until next month

Dan Keeler

dan@gfmag.com

Dan Keeler

dan@gfmag.com

...

Home