Dismally, as it relates to the markets.: First diversification, then higher rates.
David provides more color on Sweden's announcement about currency reserves.
On a related note, CNBC Europe flashed a headline from Reuters that the Russian Finance Minister said the US dollar may have a difficult time remaining as the world reserve currency.
Not sure why he would say that as they own at least some dollars but there you go.
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6 comments:
Dismally notes that higher rates attract investors, but that is not the case. Higher rates deter investment and stimulate savings, which is a problem because even the higher interest rate offered for savers is offset by higher inflation and the real rate of return on savings becomes ambiguous. The Fed can institute inflation targeting or (hopefully not) a fixed exchange rate to alleviate this problem, but with fewer dollars in foreign countries even the most rigorous financial policy won't be able to negate the long run effects completely.
As a currency trader I would take Dismally Dave's comment to be about higher rates being good for a currency, he is not talking about macro ecomomics.
The initial reaction in a currency to higher rates or the threat of higher rates is to go up. This is almost universal.
Interesting commentary. can you shed some light on what happens to the growth in other countries shoul d the dollar fall. The US is a pretty large consumer of foreign goods. However, if those goods become expensive for us, shouldn't the growth rates of other countries also slow down? I'm worried from a portfolio diversification perspective.
I think the dollar has to decline over time too.
But, everyone is expecting it, interest rates are going higher, and Asian countries demand a strong dollar and will manipulate the currency before they slow exports.
What are the alternatives? China (too soon), Japan (too soon after their financial problems), Euro (It would kill tourism and exports).
Yes the dollar is sick and will decline, but it will not be replaced soon and will not go in a straight line. If you think dollar trading is an easy sure bet – Good Luck with that.
KL
Hi since you talk about this , you may wish to check this out
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KL,
who said anything about a straight line or being easy?
This is more of a multi year theme, like oil, than a 2 week trade.
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