This may just be the beginning of a long line of posts on the faltering fortunes of the dollar…
In a wonderful application of interest arbitrage, the dollar has been falling ever since deleveraging ended earlier this year. Today's WSJ outlines the key reasons
– risk appetite is up as people bet on the end of the global recession.
– investors are leaving the safe heaven of US treasury bills that they bought during the crisis
– where is the money going? China, Japan, Brazil of Europe
But wait there is more: deleveraging and changing risk perceptions are just one part of the interest arbitrage equation. On top of this
have caused a reversal for the first time in 16 years."
These two reports feed straight into the interest arbitrage equation to explain the falling dollar.
Here is the puzzle: the same day the dollar hit its low, gold topped the $1000/oz sound barrier. Usually gold is a safe haven, just like the dollar was during the crisis. Why the divergence?
