Dollar Rally Has Legs as Fed Divergence Trade Comes Back to Life
The Dollar has been on a two week rally as people (or computers!) have decided the Dollar is a better place to park your wealth than other “safe haven” currencies
On the surface, that seems like a good thing in Donald Trump’s America of the 1950s where Chevrolet turned out “incredible fantastic cars”™.
The problem is we are not living in the 1950s. The United States is not an island. As the dollar goes up in value, the stuff we export to other countries (like Boeing aircraft) get more expensive to foreign customers. Things we buy from other countries (Carrier air conditioners) get less expensive to us, squeezing out US manufactured and agricultural goods with cheaper imports made by labor that costs less and less compared to American workers.
Why is the dollar going up? Who knows? Some possibilities…
– the Fed may raise interest rates in June, or might make them negative
– fear of an active fighting war with China
– the possibility of England leaving the EU
– rising oil prices
– fear of collapse of Saudi Arabia
– recognition that the Russian military is a threat to Europe
– momentum traders – if it is up, it will keep going up
– Donald Trump “making America Great Again”™
– Goldman Sachs says so