Friday, August 15, 2008

Dollar Days

Since mentioning a small spike in the dollar relative to the Euro when the ECB kept their rates fixed, the dollar has enjoyed a little rally over the last week. It has actually been pretty sharp. It has also rallied against a number of commodities, notably oil and gold. Oil and metals have fallen in price, or put another way, the dollar has risen in value against commodities. For several months now it has been rising in value against assets, namely stocks and real estate.

Even though this blog forecasts the strength of cash as we proceed into the recession, I’m not overly excited by this news. It smells more of panic and markets running wild than an actual trend. If, however, this continues over the coming months, and the prices of commodities stay low or even fall further, and the turmoil now seen in credit markets does not resolve with recent action by the Fed and Treasury Department, it would lend support to a running theme of this blog: that the value of the dollar is decoupled from the health of the credit markets, and even more than that, is inversely proportional.

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