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The biggest reason for the strength is risk aversion. Perhaps you
underestimate the raw panic in worldwide markets right now. It is
palpable, I assure you.
The one instrument that is seen (rightly or wrongly) as the safest
vehicle around is US government paper. Time and time again that is
where everyone runs in a financial crisis. The only exception would
be if that crisis was the US dollar.
Personally, I tend to share your astonishment at this, because I feel
the only "out" for this crisis is the printing press, and thus a US
dollar crisis is potentially in front of us.
But until that becomes apparent, or a widely shared view, the US
dollar is where everyone runs. If they run there and it looks really
crowded, I might consider the other side of the trade. But I
generally don't like currencies because you really need to use
leverage to make them pay, and leverage can be the kiss of death in
markets that can move 10 percent in a day.
Yuki
Sunday, October 26, 2008, 12:17:59 PM, you wrote:
b> Does anyone have any idea why the USD is so strong at the moment.
b> I am puzzled by this as I can't see any basis for it.
b> The only explanation that I can come up with is that there has been a
b> silent emulation of the Japanese 'carry trade' based on low interest
b> USD loans (the US has low interest rates, a desire to protect
b> exports, sluggish growth and a sophisticated investment culture in
b> common with Japan).
b> quote from:
b> http://goldnews.bullionvault.com/yen_carry_trade_101620084
b> Japan sits at the epicenter of "bubble-mania" in foreign exchange,
b> because its yield starved domestic investors plowed $6 trillion of
b> their savings into overseas assets.
b> Japanese investors increased their exposure to foreign assets by ¥59
b> trillion ($566 billion) in 2007 alone, setting a record top of ¥610
b> trillion ($5.9 trillion) and making Japan the world's largest
b> creditor nation for the 17th straight year.
b> In addition, global speculators borrowed $1.2 trillion worth of low-
b> cost Japanese Yen (Tokyo interest rates haven't got above 1.0% per
b> year since the start of this decade), in order to buy higher yielding
b> currencies, commodities, and stocks held abroad.
b> "History never repeats, I tell myself before I go to sleep at night"
b> (Split Enz)
b> http://en.wikipedia.org/wiki/Asian_Financial_Crisis
b> --- In amibroker@xxxxxxxxxxxxxxx, "Tomasz Janeczko" <groups@xxx>
b> wrote:
>>
>> Hello,
>>
>> Did you see this daily effective FED rate chart:
>> http://www.newyorkfed.org/charts/ff/
>>
>> Usually effective rate follows closely target rate (currently at
b> 1.5%)
>>
>> In recent days effective FED rate dropped below 1%.
>>
>> It looks to me that FED is going to be walking in footsteps of
b> Japan central bank in '90s.
>>
>> Now EBC funds still at 3.75% ? They are going to cut fast, much
b> faster than FED, IMHO.
>> If situation evolves in that direction we are going to see EURUSD =
b> 1.0 soon
>> and probably Japanese Yen remaining the strongest currency for
b> months to come.
>>
>> Any thoughts?
>>
>> Best regards,
>> Tomasz Janeczko
>> amibroker.com
>>
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