Every rate in the G10 is now higher than the US 3-month rate. What usually happens when we have low rates in global market with capital mobility? Carry. Fund in the cheap currency and buy the higher yielding alternative. The FX market has been feeding on this for years. If you believe that the dollar rally last year was from deleveraging and a shortage of dollars, then we should expect a releveraging now that rates have turned against the US.
But wait, the dollar decline form the USD borrowing before crisis was at higher rates, so what should happen now? The world borrowed dollars because of the funding availability in the banking system. Now we have availability and low rates. This is not dollar positive.
I thought that capital was flowing into the US because we were a liquid safe haven? Yes, that was happening at the official level, but there are many sources or dollar funding. Now we will have to look at the flow data to find the answer. All of these stories cannot be right.
But wait, the dollar decline form the USD borrowing before crisis was at higher rates, so what should happen now? The world borrowed dollars because of the funding availability in the banking system. Now we have availability and low rates. This is not dollar positive.
I thought that capital was flowing into the US because we were a liquid safe haven? Yes, that was happening at the official level, but there are many sources or dollar funding. Now we will have to look at the flow data to find the answer. All of these stories cannot be right.
No comments:
Post a Comment