What New Games Can Central Banks Play?
Does the Dollar Hold Enough Attraction to Break Out and Hold at Higher Levels?
Now is the time to begin looking at the US dollar’s re-ascendance in a different light as we approach 1:1 against the euro. Shorter term we have to expect some possible panics around flat global growth in the face of a strong dollar. Historically, as we saw in the 1980s in Latin America, US dollar rebounds lead to blow-ups among the weaker global credits, just at the point where the dollar begins a breakout not seen in decades. But, times have also changed and we should expect this round of the dollar beating up some countries to slow earlier than perhaps what we saw in the days of the symbolic Reagan induced fall of the Berlin Wall.
US dollar credit to non-bank borrowers outside the US – the greatest potential source of dollar-related trouble.
I have been following the dollar vs other FX moves for over 30 years. I was around during the big Reagan dollar rebound of the mid-80s and was on board to buy the Pound at 1:1 to the dollar. In 2000 I was also on board to buy the euro after its post-launch devaluation. And as a shipping analyst I always used the dollar as a guidepost for commodities. To me the Greenspan-Bernanke years were a case study in dollar devaluation. The Currency Wars notion is just a label to me. I agree with the concept. But the practice existed far before the coinage of the term. I always believe in taking a weighted approach to FX exposure, and increasing and decreasing weights as they move relative to each other.
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