Dollar needs rest of world to share the pain

David Woo, Head of Currency Strategy at Barclays
London Telegraph
Thursday, March 20, 2008

The dollar fell to a record low in the past month, declining to the lowest level on a trade weighted basis since 1973.

The dollar's renewed decline was due to two factors. First, the global economy has proved to be more resilient to the US slowdown than expected, with strong domestic demand of large emerging market economies like China and Brazil helping to offset the impact of the US slowdown on global aggregate demand.

This is why Germany (the largest exporter in the world), for example, has been fairly insulated from the US slowdown. It is no coincidence that euro-dollar broke above the psychologically important 1.50 level one day after a closely watched German manufacturing survey came in stronger than expected.

(Article continues below)

Second, Fed easing over the past two months has become far more aggressive whereas other major central banks have been more hawkish than expected at the start of the year.

The pace of Fed easing, especially given the elevated level of inflation, has raised questions about the commitment of the Fed to price stability. Ironically, by contributing to the surge of commodity prices, this has probably made the ECB even more reluctant to cut rates and more ready to tolerate a strong euro.

Full article here.

Email This Page to:


PRISON     Copyright 2002-2008 Alex Jones     All rights reserved.