What Will The Dollar Trend

What is the trend of the dollar July 10, 2009 again put the dollar in the center of the debate. The controversy over its possible continuation to the downside over the medium to long term versus the major currencies, remains at the center of the debate. For now, the recovery of risk appetite has led him to weaken against the euro and placed in yesterday's close at U.S. $ 1.4025 per unit of European currency. Is it advisable to bet against the dollar in the medium term? The risk-averse investors have experienced in the tensest moments of the international financial crisis has undoubtedly been the main ally of the U.S. currency. This global investor behavior has been a clear sign that still relies on the dollar as strong. This one dollar strengthened against a backdrop of deep crisis caused by the U.S. financial system itself in a terrible economy, fiscal and external deficits in continuous growth that has occurred over the past year, has been a contradictory done by others. There are not many logical explanations for why investors were confident that time (and now) in the currency of a country that was virtually on the brink of the precipice.

Certainly does not seem a rational choice. The trust has produced for decades the dollar has remained undoubtedly yet, at this critical period. You may also want to avoid implicit was their downfall for him not to collapse with high exposure because the world has against the U.S. currency. However, this confidence has begun to weaken and have already seen the first "betrayal?, Which are repeated with increasing frequency and continue to grow increasingly uncertain future of the dollar. The dollar must be viewed today from two perspectives: the short and long term. In the short term, the dollar has arguments to avoid further weakening. High exposure to international stocks of developed and emerging economies to the U.S. dollar-denominated assets, is one of the elements that restrains a more abrupt drop in the greenback. The lack of a global currency to replace it also plays for the dollar. And the alternative of a basket of currencies is not well defined and calls into question the central banks.

In the long term, the decision is made. The dollar has lost his kingdom and probably will not take it into account the economic rationale for it. Clear that macroeconomic fundamentals matter and will be considered in evaluating the dollar while your claim is reduced according to the demand from the economies of other currencies as international reserves. Competition from alternative currencies will be higher. The euro will fight for greater global participation will be key if the ECB's ability to act the way it does the Fed in driving the dollar's value. But the logic of the ECB's obsession with inflation robs responsiveness to manage a currency that is intended to fight him the lead in U.S. dollars. Other currencies have scored in the competition. China wants to impose the yuan as an international currency, although its low liquidity and the level of involvement you have, they have to wait quite some time and make great efforts to achieve your goal. At the G8 summit, the dollar was at the center of the debate. Before the summit, Arkady Dvorkovich, Kremlin economic adviser, had anticipated: "China and Russia stated its position that the global exchange rate system requires the creation of regional reserve currencies, which could then become international?.

China has about 70% of its reserves in dollars. According to Reuters, during the G8 meeting, Chinese State Councilor Dai Bingguo called on the world to diversify the reservation system and point to relatively stable exchange rates, in what represents a clear attack on the U.S. currency. The whole context undermines the dollar. Will debilitádose in the medium to long term? Obama had pledged to hold its value. The strength of the currency is part of the U.S. government's economic strategy. The question how much effort goes through is Obama willing to do to achieve this goal and how you can stand the temptation that can generate a weak dollar, beneficial for the competitiveness of the U.S. economy. Investors are already making bets against the dollar. Axel Merk, manager of Merk Hard Currency fund (Merkx) and Asian Currency (MEAFX) Funds, recognized in "The Wall Street Journal? you are taking long positions against the dollar because he sees a future weakening of the U.S. currency. The first of these funds is made by 24% liquidity in euros, 17% in Norwegian kroner (encouraged by the revenues the country receives for its oil exports), about 35% in commodities related to the currencies of Australia, New Zealand Canada, and 14% in gold.

Another big bet on the market is inevitable to take the yuan appreciation as the Chinese government give in to pressure, mainly from the U.S. for the currency to strengthen against the dollar. This commitment to the yuan is done through hedging exchange rate which is done by betting big banks in the direction in which behaves yuan. The world knows that in the short term can not let go of her hand to the dollar for two reasons. The first is the strong commitment from the investment of international reserves of the countries in dollar-denominated assets. The second reason is that the dollar is serving as a dam to the increased uncertainty in the markets. If the dollar, which is one of the few reliable shelter for investors, falls, then the crisis may reach dimensions immeasurable. In the medium and long term, however, the dollar has lost its world leadership which results in lower global demand for assets denominated in that currency, which will weaken against the U.S. inability to sustain it.

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