This may just be the beginning of a long line of posts on the faltering fortunes of the dollar...
In a wonderful application of interest arbitrage, the dollar has been falling ever since deleveraging ended earlier this year. Today's WSJ outlines the key reasons
- risk appetite is up as people bet on the end of the global recession.
- investors are leaving the safe heaven of US treasury bills that they bought during the crisis
- where is the money going? China, Japan, Brazil of Europe
But wait there is more: deleveraging and changing risk perceptions are just one part of the interest arbitrage equation. On top of this
"the dollar is now cheaper to borrow then the yen. Low US interest rates and easing of credit markets
have caused a reversal for the first time in 16 years."
These two reports feed straight into the interest arbitrage equation to explain the falling dollar.
Here is the puzzle: the same day the dollar hit its low, gold topped the $1000/oz sound barrier. Usually gold is a safe haven, just like the dollar was during the crisis. Why the divergence?