The dollar bears took a hit from the dovish announcement that the ECB may be hold with raising rates on May 5th. Since that time, we have had a minor dollar rally. We have had these moves before, like the first 20 days of the year, only to see the market move back to the dollar down trend. Nevertheless, there has been more talk that there could be a dollar rally brewing.
This talk is driven by the anti-gravity school which states that what goes down must eventually go up. Unfortunately, there is little that is occurring in the US that will drive the dollar higher. Most of the gains in the dollar have been driven by negative news in the rest of the world.
We still have not pushed below DXY index lows. In fact, the argument that the dollar sell-off has only begun can easily be made given the range-bound behavior between 70 and 90 since the beginning of 2008. With all of the crisis issues and with all of the turmoil concerning the dollar it may easily be argued that the dollar has held up reasonably well.
What is clear is that many of the currencies that have had the greatest appreciation have been the smaller G10 currencies. SEK, CHF, CAD, and AUD have all seen more appreciation than the euro over the last two years. While central banks may want to diversify, they cannot get the exposures they would like in these smaller currencies. Private capital is able to make these moves. A similar story can be told for gold where private money and smaller central banks have driven prices higher.
what do we need to see to say there is the potential for a dollar rally. No QE3 and a run-off of the Fed bond portfolio. Fiscal reform with no debt ceiling default overhang. Fiscal reform means a cut in expenditures for entitlements but not a current cut in programs which provide a buffer from slow growth. A change in policies which generate investment profits.
This talk is driven by the anti-gravity school which states that what goes down must eventually go up. Unfortunately, there is little that is occurring in the US that will drive the dollar higher. Most of the gains in the dollar have been driven by negative news in the rest of the world.
We still have not pushed below DXY index lows. In fact, the argument that the dollar sell-off has only begun can easily be made given the range-bound behavior between 70 and 90 since the beginning of 2008. With all of the crisis issues and with all of the turmoil concerning the dollar it may easily be argued that the dollar has held up reasonably well.
What is clear is that many of the currencies that have had the greatest appreciation have been the smaller G10 currencies. SEK, CHF, CAD, and AUD have all seen more appreciation than the euro over the last two years. While central banks may want to diversify, they cannot get the exposures they would like in these smaller currencies. Private capital is able to make these moves. A similar story can be told for gold where private money and smaller central banks have driven prices higher.
what do we need to see to say there is the potential for a dollar rally. No QE3 and a run-off of the Fed bond portfolio. Fiscal reform with no debt ceiling default overhang. Fiscal reform means a cut in expenditures for entitlements but not a current cut in programs which provide a buffer from slow growth. A change in policies which generate investment profits.
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