Tuesday, August 14, 2007

Dollar benifits from the turmoil

The dollar has benefited from the turmoil in the market in recent weeks. The reasons I see for this are:
1. Uncertainty in the market and traders run to the U.S. dollar for safety.
2. Selling of more risky assets (carry trades) and placing the money in safe U.S. Treasuries. Even with all the volatility if you hold the Treasury till maturity you will have all of your principal.
3. The view that this sub prime issue will lead to a slow down in the U.S. economy and therefore a decrease in the deficit which would lead to a stronger dollar.
4. Lower U.S. rates (see yesterday's post) which would decrease the interest rate differential resulting in dollars being more attractive.

Take your pick as to why, but for now it is happening. I am not sure how long it will last and still suspect that by year end the dollar will be at its weakest point of the year, but only time will tell.

Good Luck and Good Forex Trading.



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