Monday, April 21, 2008
Wednesday, April 9, 2008
Friday, April 4, 2008
Much foreign exchange commentary these days reads like eulogies for the U.S. dollar. Central banks are diversifying reserves away from the dollar. OPEC countries are increasingly worried about the decline of the dollar and the inflationary implications and may break the pegs and possibly even begin benchmarking their black gold in euros rather than dollars. The aggressive U.S. policy easing and the financial crisis, which none less than former Federal Reserve Chairman Alan Greenspan has said is the worst since the Great Depression, contributes to the lack of attractiveness of US assets. The low rates of return in the U.S. will make it increasingly difficult to fund its large current account deficit, which in turn will continue to undermine the dollar.
This pessimism is exaggerated and ignores evidence to the contrary. Moreover, the very fact that sentiment is so poor and short dollar positions so extensive may be more symptomatic of a market extreme than the beginning of a trend.