The US Dollar – One Hell of a Crowded Trade
For now at least, confidence in paper dollars is high…
The US Dollar Index – which measures the dollar’s strength against a trade-weighted basket of six major trading-partner currencies – is at the highest level it’s been since September 2003.
There are three main reasons for renewed dollar strength:
1. The Bank of Japan and the European Central Bank continue to debase their currencies by way of QE while the Fed leaves its QE program on pause.
2. Investors are expecting higher interest rates in the US, which would mean a higher yield on their dollar deposits.
3. Investors are shunning risky stocks and seeking out traditional safe havens of US dollar cash and Treasury bonds.
How long will dollar strength last?
It’s impossible to say. But this is starting to look like one hell of a crowded trade…
And crowded trades have a habit of unwinding fast!