I havent been in touch with economics much since i finished my degree, and went into the computing field. The dollar is a lot stronger now that everywhere else has now felt the knock on effects from the states over this past year (largely the subprime lending issue). However, now things have settled it looks like we might get back to normal soon-
The risk appetite is slowly returning to all markets. Fear and volatility gauges have calmed down majorly (like the VIX, Libor rates, the TED spread, etc.). When risk aversion was the flavor of the day, the dollar flourished. However, if markets calm down and regain their sanity (as they are starting to do even now), then the dollar will take the back seat to higher interest yielding currencies.
GMs bankruptcy. If General Motors goes bankrupt, and it looks like they will, then there is going to be a lack of confidence in the U.S. dollar. GM is an American icon, and if it goes into bankruptcy (even though it will re-emerge from it), it doesnt bode well for the dollar.
Friction with China. One thing I can say about George Bush is that he had sense enough to get Hank Paulson as his Treasury Secretary. Paulson knew how to deal with the Chinese. So far, no one in the Obama administration seems to have a clue as to how to deal with them. Normally, China buys our U.S. treasuries like clock work each month. However, in January and February, they were net sellers of our bonds.
Commodities have reversed their downtrends lately. This is not good from the dollars point of view since the dollar is on the opposite side of the teeter totter from commodities. As gold, oil, copper, lumber, etc. have stopped falling and consolidated sideways
and some have even gone back into up trends lately, it doesnt bode well for the greenback.
Money has started to move back into emerging markets (into their currencies, bonds and stocks. When investors are willing to start to stick their necks out that far for returns and interest rate yields once again, the last place they will stay is in the U.S. dollar.
U.S. Treasuries will crumble. While this part may not happen immediately (due to the Fed propping it up artificially as they buy them to drive rates down further), every money manager out there knows that this shoe will drop. When it does, the last place you want to be invested is in the U.S. dollar. This is yet another reason why money has recently run to emerging market currencies and commodity currencies (like New Zealand and Australia). Thus the carry trade is re-emerging once again!
The dollar index is failing to make new highs. The dollar cant seem to muster up enough strength, technically on the charts, to break into new highs as its done for the past year or so. This shows that money is already sneaking out of the dollar and most investors are oblivious to it. Theyre waiting for the same song to continue thats been playing for a year or more now. However, the tune is changing and they cant hear it.
~ Extract from Sean Hyman (April 09)
