Dollar Heading for a Fall

Nothing has happened to change our view that the dollar has now commenced its next big move down. In the short term, this will be helped by the expectation of at least a lull in Fed tightening. There is nothing like a change of sentiment with regards to interest rate differentials to send currencies meaningfully in one direction or another.

The sharp rise in oil prices should significantly increase the value of US imports. Because of that, their trade deficit will, we expect, go to record levels. If so, the negative impact on the dollar will be substantial.

China's part in this complex puzzle is important. Recently, Zhou Xiaochuan, Governor of the People's Bank of China said "I think it is very clear that China is introducing a new exchange rate mechanismit is not a one-time adjustment". He went on to say that observers should not assume progress would be very slow.

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So far, the pound seems to be benefiting the most against the ailing US dollar. However, as momentum grows we would expect the euro to benefit not only against the dollar, but also against the pound.

The important currency, gold colloquially known as "real money" continues to anticipate the weaker dollar. For the third time this year, the gold price has rallied to $450/oz the last significant barrier between here and $500/oz. A move above $500/oz, which we are sure will take place, will give huge impetus to the Merrill Lynch Gold & General fund.

By R H Asset Management, in the Onassis newsletter, a fortnightly newsletter that gives insight into the investment markets For more from RHAM, visit https://www.rhasset.co.uk/