Why you should keep a close eye on the US dollar

Fannie and Freddie have put the wind up the US and the dollar will pay for it whatever the Federal Reserve tries to do. But something big may be in the air – and the dollar could end up on the floor.

The United Arab Emirates is currently suffering inflation of 11%, much of which is because of their dollar peg. Others with pegged or managed currencies are in a similar plight. On a day-to-day basis it seems quite unlikely that they will unpeg, however, common-sense says they must - a Sword of Damocles hangs over the dollar.

The problems surrounding Fannie and Freddie are a huge risk to the US dollar as is the worry that other banks will follow the IndyMac route and fail outright. All of that pressure on banks will get worse as the US housing market gets worse, which it will. We see no reason to change our view that dollar weakness will continue.

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