The US Dollar, from John Floyd
On the day, the U.S. dollar is trading generally better versus the majority of currencies after the initial weakness posted by the FOMC. I am wondering whether the expected return profile augurs for a more significant strengthening in the U.S. dollar in the days and weeks going forward.
While not significant on its own, it is interesting to note that there are several examples in the past six years where the Euro has made a new high or very close to it, failed, and then had a period of notable weakness. See below for a rough outline. In combination with other factors such as: what seems like a universal bearish U.S. dollar sentiment; likely improving U.S. balance of payments as the trade account improves with the slowing U.S. economy and the capital account remaining strong; and future interest rate expectations in the respective countries already pricing a wide divergence in rate paths.
One clear major risk is an all out liquidation of U.S. assets. And with that the capital account would deteriorate more than the improvement in the current account, leading to a weakening in the U.S. dollar.
High Low
July 19 2002 1.0199
September 20 2002 .9613
March 14 2003 1.1083
March 21 2003 1.0504
May 30 2003 1.1933
September 5 2003 1.0764
October 10 2003 1.1860
November 7 2003 1.1377
February 20 2004 1.2926
April 30 2005 1.1761
December 31 2004 1.3666
Februay 11 2005 1.2732
March 11 2004 1.3482
July 8 2005 1.1868
September 2 2 1.2589
November 8 2005 1.1640
June 9 200 1.2979
July 21 2006 1.2458
December 8 2006 1.3367
January 12 2007 1.2868