Dollar moving to the upside

The dollar had an extremely strong month to the upside not seen since May of last year when we had ongoing problems in the EU. The combination of the belief that monetary policy expectations may not be as easy as thought earlier and the uncertainty from the Italian election has caused more investors to jump on the bandwagon of holding the dollar. The Fed minutes released suggest that continued buying of $85 billion a month may not be as certain as thought earlier. If this is true, the credit expansion for the rest of the globe will be in jeopardy.

A strong dollar is not what you would find if the world wants to take on more risk. A dollar bull market would be an interesting reversal of long-term trends and not consistent with a robust world economy.  A dollar pull will start to pull money from the other parts of the world into the US. We have seen this story before and it can be bad for leveraged bets in emerging markets. There may be carry-over to risk assets. For example, a stronger dollar with less credit expansion and slower EM growth would not be good for those commodities tied to the overall business cycle. The slowdown in EM equities is also likely.