Interestingly enough, these days the US good economic news tend to come all together, as did the bad news for several months in a row previously. First of all, the USD has gained a serious foothold against the troubled Euro, up to 0,67 of 1 euro. It has done so by steadily climbing in the last 5 days from 0,657, which is quite a performance for such a short period. Of course, this has led to huge gains (or losses) on the forex markets, but it also provided a short respiro to the troubled US economy who seemed to see no light at the tunnel end.
To understand this increase, it is not enough to use a one-factor only analysis, as some of the analysts did recently. And rest assured that the market reacted to more than the Chinese buying massively USD in exchange of the US support for their Olympic Games 2008 in Beijing, as some blogs claimed. (In fact in the inauguration ceremony of the Beijing Olympics the US president George W. Bush was defying China with human rights breaking accuses). In fact, the rise of the dollar was due to a convergence of more economic factors.
In fact, the ris of the US dollar is due in a little measure to the fact that the economic news are positive and are indicating a recovery of the United States economy. Far from that. In fact, the US dollar is increasing because the other currencies are getting weaker, which is a way of saying that the investors are choosing as targets for their cash conversion the best of the worst.
But what are the news that have led to this serious surge in the USD value?
Oil fell to $113 a barrel on Tuesday after government data showed the steepest decline in U.S. crude demand in 26 years, adding to mounting concerns about global consumption. From $145 and more this is a long way down for several days, indicating that the oil trading was in a high degree speculative (with the well-known smell of the hedge funds).
Seconly, the second largetst traded curreny in the world, the euro, is weaker and weaker as an avalanche of bad news is hitting it.
The dollar has rallied more than 4 percent against the euro this month with help from a sell-off in oil prices and growing fears economies elsewhere may slow at a faster pace than in the United States.
The euro slid to a six-month low against the dollar earlier after breaking a series of key chart levels, convincing some analysts that the greenback may be ending its seven-year slide.
Still, demand for the U.S. currency waned on Tuesday and investors shrugged off data showing the U.S. trade deficit unexpectedly shrank in June. The dollar also accelerated its losses against the yen in late afternoon trading after selling on Wall Street picked up speed.
Some analysts said that the US dollar has increased simply because the demand for tht currency has increased, meaning that some big trades were going on in USD’s.
Losses in the greenback were limited as investors awaited data on U.S. retail sales and consumer prices for July, due out Wednesday and Thursday.
So what are the lessons of this sudden US dollar recovery? For the investors, this is a moment of turnaround, which means that (based on the new flood of US economical data due this week) things might turn around very quickly or continue on the same path. My guess is that the USD will stagnate for a while around those levels, whilst the forex investors will wait to see how the economical news will look for the EU in the incoming months…