WHY IS THE DOLLAR NOT RALLYING? THE REASON IS ALL TOO SIMPLE.
It is May, and traditionally in the May through August period, there is a correction in the currencies which have been strong during the winter and spring months. This is the time of year when the declining currencies often get a chance to rally and collect themselves before the Autumn season when renewed seriousness grips international currency traders, and the weak currencies usually begin to decline again.
If the US dollar is going to rally, it should have begun to do so and its window of opportunity is shrinking with each passing day. The answer to the question is probably that many currency traders believe that the U.S. fundamentals are not going to improve on a broad basis and additionally, the U.S. is not raising interest rates, while many other countries are signaling upcoming interest rate increases.
This is because the economies of almost all developed countries, and all of the rapidly developing countries are growing much faster than the U.S. economy. With slow economic growth comes decreased demand for money. With slower economic growth, money leaves U.S. investments and moves to foreign shores to obtain better returns in foreign stocks, bonds, currencies and commodities.
If the dollar is to rally it should do so soon. The U.S. will be helped by a weaker dollar and exports will rise, the big question is, will imports stop rising so fast? If the U.S. consumers slow down their spending spree, and if the U.S. slows down the Iraq war spending, then the dollar can put on an extensive rally. Until then, any rallies in the U.S. dollar are likely to be short [for a few weeks] and not very sweet.
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