The Curious Case of the U.S. Dollar

As equity markets test their November lows, the US Dollar index is testing its November highs. The US Dollar has been a peculiar "risk-flight" trade throughout the credit crisis, as global investors have flocked to the currency with the belief that other sovereign nations are even worse off than the US. This comes at a time when gold is also rallying to new highs, and the US money supply is increasing at an astounding rate.

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Comments

[Top Gun:]

Dollar index is relative. The other index members are hurt badly. Gold does well in all currencies.

M1/M2 increase without a decrease in the dollar shows just how big M3 had gotten - either M3 collapses or M1/2 grows to fill it with real $ until velocity restarts. If previous administration hadn't stopped publishing M3, I firmly believe all this mess would have been avoided by prudent investors understanding their risks.

Feb 17 06:26 PM

[Simon Smelt:]

Agree with topgun on the basic MV story.
Combination of high dollar and high gold shows high risk aversion and lack of confidence in all currencies - with the U.S. viewed as the least worst for the moment.

Feb 18 02:29 AM

[User 241672:]

I just don't buy this "risk aversion" trade. There's got to be something more. Show me one scrap of empirical evidence that agents are dumping their local currencies and running to the US dollar.

Such a fundamental thing as the value of the US currency and there's just no discussion beyond this "risk aversion" cliche.

Roubini? Greenspan? Gross? Surely someone with authority will speak to this.

Feb 18 05:41 AM

[kelm:]

Jim Rogers stated last week that there were massive short positions out there on the US dollar and so every delay in the dollar falling and every uptick in the dollar is pushing shorts out little by little.

Personally, I think there was a large US dollar carry trade that is still unwinding as well.

I completely agree that this "flight to quality" is largely BS. What quality? Unless we are to assume that European and Asian fund managers are clueless about the real state of the US fiscal position and economy.


On Feb 18 05:41 AM no_disclosures wrote:

> I just don't buy this "risk aversion" trade. There's got to be something
> more. Show me one scrap of empirical evidence that agents are dumping
> their local currencies and running to the US dollar.
>
> Such a fundamental thing as the value of the US currency and there's
> just no discussion beyond this "risk aversion" cliche.
>
> Roubini? Greenspan? Gross? Surely someone with authority will speak
> to this.

Feb 18 10:24 AM

[morph366:]

Asian and Middle Eastern governments and sovereign wealth funds think the US dollar is the worst currency int the world apart from all of the rest.
They are also seeing more risk in the euro from woes in the eurozone itself and its eastern European neighbors that are putting real stress on the European monetary union

Feb 18 10:32 AM

[smart as paint:]

a ags says over and over "it's the best of a bad lot" some time soon the gold bubblers will wake up and realize there is only deflation as far as the eye can see (so to speak)

Feb 18 08:01 PM