Despite the dollar holding strong against the Euro and the Yen, sentiment towards the Greenback is still negative.
However, looking at international interest rates, its clear why the dollar should remain strong. US 1 month LIBOR rates at 3% are now higher than both the European Union’s (EU) rate at 2.0% and Japan’s rate at below 1%. Only England’s LIBOR rate stands higher at over 4.5% but the Bank of England has been very tight.
And given the weak economic news out of Europe, its only a matter of time before EU rates go lower there while US rates continue to move higher.
In addition, sentiment towards the Dollar remains very negative. Whenever you start seeing ads like this on Yahoo finance, its time to take the opposite side of the trade.
That makes for a very powerful combination – negative sentiment in a nascent uptrend.
Nice RoboCop reference. I know it’s only theory, but if the U.S. Libor rate increase is due to an increase in nominal U.S. interest rates (spurred by anticipated inflation/Fed tightening), shouldn’t the dollar weaken in order to maintain parity with the major currencies?
PPP states Inflation=relative devaluation of currency? Right? Of course, PPP isn’t the most valuable theory in the real world.