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With the dollar feeble against everything that matters, you don’t have to look very hard for “slow death of the greenback” predictions. Further down the scale, and a little less histrionic, are those who fear the U.S. currency is (altogether now) “losing its safe-haven status.”
Who knows? Some or all might even turn out to be wonderfully prescient; bang on the money. But even the most unreconstructed bear must still admit that the dollar has sailed serenely through such flotillas of doubters many times before.
What is certainly true is that none of the main drivers of foreign-exchange action at the moment scream “buy dollars” at you.
The interest rate saga is perhaps the most obviously dollarphobic. The European Central Bank and the Bank of England are both seemingly open to hikes; some of their policy setters are getting keener on the idea by the day. The Riksbank is already hard at it, of course, as are others.
Meanwhile, the Federal Reserve isn’t only some way from raising rates as far as anyone can tell, it’s still ploughing its lonely quantitative-easing furrow. So there are clearly better-yielding places to be than under the dollar’s wing, and will be for some time to come.
Then there is oil. Triple-digit crude prices favor the big exporting nations’ currencies. Witness the strength of Norway’s krone and the dollar’s Canadian cousin.
Moreover, as UBS AG’s chief currency strategist Mansoor Mohi-uddin pointed out in recent research, higher oil prices could lead to increased diversification away from the dollar by those bloated sovereign wealth funds in producing nations.
Lastly, political unrest in the Middle East and North Africa doesn’t exactly burnish the dollar’s safety-play credentials. You would buy the “Swissie” instead, wouldn’t you? After all, the assault carrier and attendant support vessels that transited the Suez Canal into the Mediterranean Wednesday weren’t Swiss.
There is clearly some risk that the U.S. will be dragged more deeply into Libya’s turmoil, despite the best efforts of Obama, Clinton and Co. to steer militarily clear.
However, Mohi-uddin also sounded a warning against becoming too bearish on the dollar at current levels.
“If equity investors start to worry that higher oil prices will lead to sharply lower global growth, then the dollar will rebound as stock markets decline. First, as investors reduce their expectations of rate hikes in Europe. Second, as U.S. portfolio managers repatriate funds from abroad,” he wrote.
“Thus foreign-exchange investors need to watch whether equity markets will continue to hold up or not in the face of rising oil prices.”
Everyone enjoys kicking the dollar while it is down. But the markets’ drivers today won’t be in the front seat forever. Maybe, in the end, the dollar’s problems are less strategic, and more tactical, than many observers realize.
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Actually, what you don't have to look hard for are blogger comments about how easy it is to find "dollar bear" comments. USD bears have been a rare commodity until about 2 weeks ago. This is a non-story about a major change that as been in progress since 2007 (at least). Then, again, the WSJ editorial policy has had a relative attention span equivalent to the life span of a mayfly for well…a coon's age.
The Source is WSJ.com Europe’s home for rapid-fire analysis of the day’s big business and finance stories. It is edited by Lauren Mills, based in London.
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