USD at $1.38, coming off a huge collapse in the Treasury market the last
two days.
Some people are seeing signs that risk aversion is starting to abate in capital markets around the world. It's a hard case to make, because it depends on success by the US in stimulating our economy. The way this line of reasoning goes, interest rates will stay at near-zero in the developed economies, but the US fiscal stimulus will work. That will revive interest in the emerging economies, resulting in capital flight from the US, a much lower dollar, and a much steeper yield curve.
The contrary case is that extreme risk aversion will continue as financial institutions around the world seek ever-higher capital ratios in a world that feels like no one is really in charge. That scenario calls for a continued flat yield curve with unprecedented low rates for Treasury debt, a possibly strong dollar rally, and a threat of deflation.
So by the end of 2009, will the dollar be closer to $1.20 or to $1.60?
Tossup.
Some people are seeing signs that risk aversion is starting to abate in capital markets around the world. It's a hard case to make, because it depends on success by the US in stimulating our economy. The way this line of reasoning goes, interest rates will stay at near-zero in the developed economies, but the US fiscal stimulus will work. That will revive interest in the emerging economies, resulting in capital flight from the US, a much lower dollar, and a much steeper yield curve.
The contrary case is that extreme risk aversion will continue as financial institutions around the world seek ever-higher capital ratios in a world that feels like no one is really in charge. That scenario calls for a continued flat yield curve with unprecedented low rates for Treasury debt, a possibly strong dollar rally, and a threat of deflation.
So by the end of 2009, will the dollar be closer to $1.20 or to $1.60?
Tossup.
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