Monday, October 27, 2008

Dollar Regaining Hegemony of Sorts

Amidst the talks of Dollar losing its stature of Reserve Currency to 15- member country Euro , a complete volte face can now be seen.  Dollar is strengthning against all major currencies with the exception of Japanese Yen and Chinese Yuan owing to the Carry Trade.
The credit Crisis is the US is sucking out all Dollars across the countries leading to the increased demand for Dollar and consequently leading to its Secular rise.
But Yen is going strong against the Dollar due to the unwinding of the Carry Trade positions, wherein , the investor borrows cheap and invests in high yielding asset. 
Thus, the dollar is regaining strenght not due to the inherent strength in it or people reposing trust in the US economy, rather due to the credit crunch ,with the US being the front runner and the liquidity crisis percolating to other European countries. 


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