Marc Chandler

Is the Dollar Rally Over Now?

Perhaps the Fed and Tsy programs will lead to inflation, but the more pressing issue is deflation. Moreover, Europe has done much less than the US and yet the market, judging by the 5-year/5-year forwards are anticipating nearly twice the inflation in the euro-zone than the US and even more in the UK.

Yes there may a longer term inflation risk, but it still seems that policy makers here and abroad are still erring on the side of too little rather than too much.

I personally woulde find such doom and gloom views more compelling if there was some analysis of the other side of the equation. The US has its problems, no doubt, but the dollar's performance is a function of relative considerations. The dollar vs the euro or the dollar vs the yen. Indeed I would and have argued that the US may be one of the few countries that emerges from the crisis stronger than we went into it. We will get what we were told we had--transparancy, true markets (cf auction rate bonds), disintermediation, and many rivals, like Russia will see their ability to project power limited. And, lastly, the crisis, reveals fractures in the very foundation of the euro project and fewer will argue the euro is about to eclipse the dollar as the major reserve asset.