I was long the US$ for a short term trade. No more.
Then I read Dr. Doom Roubini out this morning with these comments:
“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an
interview today in Cernobbio, Italy. “The value of the dollar over time has to
fall on a trade-weighted basis, but not necessarily relative to euro and yen.”
Roubini said he didn’t see a risk of a dollar crash in the “‘short
term.” The value of the U.S. currency relative to currencies such as the yen or
the euro “cannot change too much compared to current levels because if the
dollar were to weaken a lot and the euro strengthen a lot, that’s going to warp
any chance for the European economy to recover, same argument as to the yen,” he
“Most of the adjustment of the dollar in the future has to occur
relative to China, relative to emerging Asia and relative to some of the other
commodity exporters in the world, whether these are advanced economies or
emerging markets,” he said.
Foreign creditors need assurances that the U.S. will address its
deficit, Roubini said.
“Unless in the medium term these issues of fiscal sustainability are
addressed, and unless we mop up that excess liquidity from the financial system,
eventually the financial markets and the foreign creditors of the United States
might get more concerned about the sustainability of the U.S. fiscal deficit and
about the U.S. being tempted to use the inflation tax as a way of resolving its
private and public debt problems."