Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Win-Win Scenario for the U.S. Dollar

Currencies / US Dollar Feb 07, 2010 - 04:23 AM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleThe debt problems in Dubai threw a wrench in the happy-go-lucky risk trade of last year. And since then, the perception of the state of the global economy has been unraveling.

All of the sudden, the world isn’t as safe a place as was thought just months ago: Global stock markets are falling, commodity markets have cracked, and foreign currencies are back in decline.


All of this has been good for the U.S. dollar.

In fact, the dollar is operating in a win-win environment these days. Heads the dollar wins; tails practically every foreign currency loses.

Here’s why …

When evaluating the prospects for economic growth and recovery, the U.S. economy is expected to do better than other major economies around the world. And the Fed is winding down its extraordinary policy programs sooner than the likes of the UK and Japan. So, with respect to economic growth and interest rate prospects, global investors have had a growing bias toward buying dollars.

Furthermore, global risk appetite is taking a hit.

When that’s the case, investors become less concerned about where the best projected returns might be, especially given the rosy assumptions made about recovery in those projections.

Investors are seeking refuge in the world’s safest market.
Investors are seeking refuge in the world’s safest market.

Instead, they become more concerned about the ripple effects of a potential debt crisis, so they seek shelter. And the safest place to park capital is in the deepest most liquid capital markets and currency in the world: The United States and the U.S. dollar.

As I laid out in a December Money and Markets column, back when the masses were still predicting the imminent collapse of the dollar, there are four catalysts at work that are projecting another leg of safe-haven demand for dollars — and potential crisis for other currencies.

Here’s what I said on December 12 and how it’s playing out …

Catalyst #1 — Rising Prospects of a Sovereign Debt Crisis

I said …

“Debt problems in a global crisis have the ability to be contagious. And that can destroy investor confidence in the capital markets of such countries, and in the global economy. And when confidence wanes, capital flees. That’s a recipe for falling dominoes.”

How it’s playing out …

The dominoes are lining up. What started with Dubai, quickly turned the market focus toward Greece. Now the ratings agencies are warning of downgrades on Portugal, Spain, Italy, Ireland … and even France! And last week the outlook for Japan was downgraded. It’s fair to say then that a sovereign debt crisis is underway.

Catalyst #2 — Problems for the Euro

I said …

“So the uneven performance in Europe will likely call into question the viability of the euro currency again. Another bout of speculation of a break-up of the euro is hugely dollar positive.”

If a euro member exits, the common currency could be in trouble.
If a euro member exits, the common currency could be in trouble.

How it’s playing out …

The European Monetary Union’s credibility has been damaged. All of the sixteen countries in the monetary union have either breached or completely disregarded the Stability and Growth Pact by running excessive deficits. Greece and other gross offenders are exposing the EU’s inability to enforce fiscal deficit limits.

And the unknown implication of a failure, and/or exit, of a euro member country is increasing speculation of a break-up of the euro currency.

Catalyst #3 — Growing Uncertainty Surrounding Economic Recovery

I said …

“Moreover, when you answer a liquidity crisis with more liquidity, you’re bound to create more bubbles. While ground zero for the credit crisis was the U.S. housing market, new bubbles in real estate are developing in the areas that were relative outperformers in the downturn (such as China, India and Canada).”

How it’s playing out …

After Chinese banks drenched the country with new loans throughout the first half of 2009, the Chinese government stepped in and applied the brakes, fearing asset bubbles. That’s increased concern about a slowdown or worse, a crisis, in China. And that has resurfaced concern about a double-dip recession for global economies.

Catalyst #4 — Protectionism

I said …

“Perhaps the biggest factor in the protectionism threat is China’s currency policy … As this issue with China’s currency gains in intensity, expect protectionist acts to rise, in retaliation. And expect collateral economic and political damage.”

How it’s playing out …

Currency issues are causing friction between the U.S. and China.
Currency issues are causing friction between the U.S. and China.

As expected, China’s currency manipulation is a hot topic. President Obama recently made his most aggressive statement on China, calling China’s goods “artificially deflated in price.” And the White House chief economic advisor threatened that free trade may not apply when countries were trading with nations that were pursing mercantilist policies.

In general, hostility between the U.S. and China is rising. China has accused the U.S. of wrongful accusations and pressures over trade policy, over the Internet, and over U.S. arms sales to Taiwan.

As you can see, these hot spots for the global economy that I presented in December are growing in intensity. But that’s to be expected. After all, we have just emerged from a near global depression, and have witnessed unprecedented global policy responses.

The outcome can’t be measured with any degree of certainty. And that uncertainty should continue to drive the safe-haven demand for the dollar.

Regards,

Bryan

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules