Comments on: How much longer for dollar strength? http://www.creditwritedowns.com/2008/12/how-much-longer-for-dollar-strength.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/12/how-much-longer-for-dollar-strength.html#comment-1244 Edward Harrison Wed, 10 Dec 2008 06:58:28 +0000 http://www.creditwritedowns.com/?p=1842#comment-1244 @Jake: I am back from Holiday and wanted to step in as it seems Marshall is away. I see the error there regarding the index and will look to correct that. As for the dollar, currencies are very difficult to call over the short-term because they don't really act according to the fundamentals (even over the medium-term). I think the Euro was way overvalued at 1.60 and was destined for a correction. However, now we are seeing the U.S. flooding the market with money and it seems that this must eventually be dollar bearish. You were saying that a lot of the dollar move looks to be related to deleveraging. Interestingly, I see the same in the recent moves in treasury rates. This seems to be a burgeoning bubble that is very supportive of the dollar. However, when this bubble bursts I fear we could get a whipsawing, much as we did after the commodities bubble burst. If you put a gun to my head and asked me were the dollar should be, I actually would say it seems about right here. But, I do see weakness based on expected events (i.e. a reflation play and quantitative easing by the Fed). Any thoughts there? @Jake:
I am back from Holiday and wanted to step in as it seems Marshall is away. I see the error there regarding the index and will look to correct that.

As for the dollar, currencies are very difficult to call over the short-term because they don’t really act according to the fundamentals (even over the medium-term). I think the Euro was way overvalued at 1.60 and was destined for a correction. However, now we are seeing the U.S. flooding the market with money and it seems that this must eventually be dollar bearish.

You were saying that a lot of the dollar move looks to be related to deleveraging. Interestingly, I see the same in the recent moves in treasury rates. This seems to be a burgeoning bubble that is very supportive of the dollar. However, when this bubble bursts I fear we could get a whipsawing, much as we did after the commodities bubble burst.

If you put a gun to my head and asked me were the dollar should be, I actually would say it seems about right here. But, I do see weakness based on expected events (i.e. a reflation play and quantitative easing by the Fed).

Any thoughts there?

]]> By: Jake http://www.creditwritedowns.com/2008/12/how-much-longer-for-dollar-strength.html#comment-1142 Jake Sun, 07 Dec 2008 07:13:47 +0000 http://www.creditwritedowns.com/?p=1842#comment-1142 You're showing the non-mftg index data, but stating it is from the manufacturing index. While service (non-mftg) exports are indeed falling faster than imports, the 12 month average is still positive. On the other hand, the manufacturers index actually shows the reverse (i.e. imports falling faster, likely due to the crash in commodity prices - see attached charts). The fact that the U.S. is using a significantly smaller "supply of dollars" for imported oil, is a definite positive for the dollar, though this doesn't improve the 'net export' figure in GDP as units is all that matters... Given all of this and the economic problems associated with global markets, I am not nearly as large a dollar bear as some. I definitely feel there will be weakening of the relative value of a dollar (i.e. inflation) at some point due to an oversupply, but I expect this to happen across all currencies. Thus, the relative weakness of the dollar (which matters for exchange rates) won't be nearly as weak in my opinion. HOWEVER, I due think some / a lot of the move we've seen over the past few months was largely due to the deleveraging of global investments and will rebound in the coming months. You’re showing the non-mftg index data, but stating it is from the manufacturing index. While service (non-mftg) exports are indeed falling faster than imports, the 12 month average is still positive. On the other hand, the manufacturers index actually shows the reverse (i.e. imports falling faster, likely due to the crash in commodity prices – see attached charts). The fact that the U.S. is using a significantly smaller “supply of dollars” for imported oil, is a definite positive for the dollar, though this doesn’t improve the ‘net export’ figure in GDP as units is all that matters…

Given all of this and the economic problems associated with global markets, I am not nearly as large a dollar bear as some. I definitely feel there will be weakening of the relative value of a dollar (i.e. inflation) at some point due to an oversupply, but I expect this to happen across all currencies. Thus, the relative weakness of the dollar (which matters for exchange rates) won’t be nearly as weak in my opinion. HOWEVER, I due think some / a lot of the move we’ve seen over the past few months was largely due to the deleveraging of global investments and will rebound in the coming months.

]]>