[OPE] Strenghtening dollar?

... where is this strength coming from? The answer, it seems, lies in broad-based global demand for long-term US government debt. (...) Comparing the EURUSD exchange rate with the US Treasury 30-year "Long" Bond, we see a staggering inverse correlation of 82% as of 10/03/08. This strongly suggests that the greenback is rising because traders are cashing in their investments for US dollars and using them to buy US Treasury Bonds [and other securities - JB] as a safe-haven asset. http://www.dailyfx.com/story/special_report/special_reports/US_Dollar_Rises_as_Jobs_1223273562748.html

The investors are frantically putting money in the Treasury bills to keep their wealth safe and secured. http://www.encyclocentral.com/26579-RTC_Solution_May_Be_Used_To_Resolve_Financial_Crisis_In_US_Economy.html

The dollar rose to the highest level in a year against the euro on speculation that economic growth in Europe will be slower than in the US http://www.bloomberg.com/apps/news?pid=20601083&refer=currency&sid=a2BKdP.EdyZ4

"This spreading weakness abroad - and it is worse now in Europe and Japan than it is in the U.S.A. - is the primary reason for the dollar's recovery," said David Rosenberg, an economist at Merrill Lynch. http://www.iht.com/articles/2008/08/24/business/econ25.php

Our full-year EU growth estimate for 2008 now stands at 1.0%, compared to 1.3% before. (...) While the main reasons behind our USD-positive view are related to risk-aversion and market positioning accentuating the dollar's supremacy as the world's dominant medium of exchange and unit of account, we also believe that TARP [troubled assets relief program - JB] should not be negative for the dollar. (...) We disagree with the presumptions that (i) interest rates in the US will rise because of the large supply of public debt associated with financial assistance plans; (ii) the Fed will be compelled to 'print money' to inflate this debt away; and (iii) financial assistance plans will be negative for the dollar. Neither history nor the facts support them, in our view. http://www.morganstanley.com/views/gef/index.html

J.

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Received on Mon Oct 6 15:40:54 2008