Euro Weakness Will Effectively Support Us Dollar.

In June 7th, the US dollar index reached its highest level in more than a year, 88.71, just 89.49 inches from the previous high of March 2009.

The strength of this round of US dollar was quite unexpected. global economy With steady recovery, the market expects the fed to take the lead in easing monetary policy. After nearly 9 months of decline, the dollar began to strengthen in December 2009. However, as time went on to April 2010, the world economy was changing, the Greek debt crisis broke out and spread, and the economy was worried about two times. This caused global demand for capital to rise, and the US dollar began to rise steeply from April until June 7th, when the US dollar index hit a new high in nearly a year.

From our analysis of the logic of the US dollar, the logic of the medium-term interest rate parity logic and the relative change of labor productivity, short term arbitrage trading, and risk aversion demand all point to the strong dollar. Many indicators of the financial market, such as the 3 month US dollar LIBOR interest rate, the US 10 year treasury bond yield, the TAD spreads and the VIX index, are all very well echoed with the strength of the US dollar index.

For now, we consider the US dollar index. Strong Should be able to maintain. First of all, from the evidence that Greece's national debt crisis is far from over, it tends to become more and more intense. The deepening crisis has caused the euro to suffer heavy losses. First, the national debt exposes the deep structure of the euro area's economic structure and production efficiency imbalance, fiscal policy and monetary policy incompatibility, and seriously affects the market's confidence in the euro and its international reserve currency status; secondly, the debt crisis that erupted in Greece will surely delay the pace of the European Central Bank's withdrawal from loose monetary policy, and the euro zone rate hike now appears to be far from being expected. Thirdly, the 750 billion euro rescue plan launched recently is considered to be a temporary solution to the problem, which does not solve the structural problems of the euro area economy; on the one hand, the overweight of European quantitative easing monetary policy strengthens the market's expectation of inflation in the region, and the attractiveness of the euro zone's national debt will decline. At present, as long as the European debt crisis is not properly resolved, the euro will hardly rise steadily. Although the trend of decline will ease, the trend will not change. The euro accounts for 57.6% of the US dollar index, and the euro weakness will undoubtedly support us dollar effectively.

Secondly, in dollar In the index calculation, 11.9% of the pound is hard to deal with the euro, and the euro is bad. While the yen occupies second place in weight, on the one hand, its political situation is unstable. On the one hand, in view of the long recession of its domestic economy, its quantitative easing monetary policy is difficult to end in the medium term. Therefore, the yen is unlikely to fluctuate significantly, and it will continue to play the leading role in the carry trade. In a sense, the yen and the US dollar tend to be consistent, which has little effect on the US dollar index.

In terms of commodity currencies, Canadian dollar accounts for 9.1% of the US dollar index, less than 10%. First of all, Canadian dollar accounts for a relatively small impact on the dollar index; secondly, because of China's domestic real estate regulation and Greece's national debt crisis, international commodity prices have dropped significantly, and commodity currencies are still strong, waiting for the global economy to recover significantly or inflation expectations clearly upward. The economic recovery has been difficult, and since the end of 4, we have observed that inflation expectations, measured by the 10 year TIPs, have been declining. Therefore, the overall strength of commodity currencies is hard to see in the short term.

Therefore, the US dollar index will continue to rise from the US dollar's counterpart currency. From the perspective of the US's economic development, besides the smaller commodity countries, such as Australia and Canada, the recovery of the US economy is still the strongest in the western countries. From the perspective of the expectation of the interest rate parity, the US dollar will also strengthen, and the US dollar index will not rise to the high point of 2005.

The question now is whether the rise in the US dollar will turn into a long period bull market that has lasted for many years. The root cause is that there is no new trend in the economic model of the United States. It also faces the problem of high fiscal deficit and high trade deficit. The subprime crisis exposes the drawbacks of the US economic model, the lack of innovation, the break of new technologies and new models, and the way Americans can develop their economy through the development of bubbles. The United States is back to the old mode, that is, through the central currency status of the US dollar, to achieve the economic growth of high consumption, high trade deficit and high fiscal deficit, or to seek new industries and technological innovation to maintain its leading position. At least, there is no convincing indication of the possibility of the latter. Once the European debt crisis is over, the US dollar will soon be down again.