Will the dollar collapse begin in March?

This investment business demands infinite patience particularly during long periods of non-activity, which has been the case in the currency markets for a number of months. The US Dollar Index in July last year was at 97, almost exactly where it is now.

Perhaps the reason for the lack of activity in major currencies is because all eyes have been firmly fixed on gold bullion. Since July last year, it has moved from $420oz to $550oz a move against the US dollar of approximately 33.3%. The currencies of the world have been devaluing against gold not against each other.

Eventually currencies will get back on trend, which we still expect to be a deteriorating dollar and the pound deteriorating, but by a lesser amount, both relative to a strong euro, a strong yen and even stronger gold.

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America's trade deficit in December was $65.7bn, 1.9% higher than in November when it was $64.7bn. There is little likelihood of any improvement as imports continue to be 60% larger than exports. Self-interested, foreign Central Banks remain willing to finance this deficit, but that eventually will end.

A tiny chink in the dollar's armour may appear in March when Iran opens its new oil bourse, which is to be priced in euros. Back in 2000, Saddam Hussain threatened to price his oil in euros. There are cynics who say that had as much to do with the invasion of Iraq as anything else. It would be a real blow to the financing of America's trade deficit if foreign governments did not need to keep dollars to buy oil.

By John Robson & Andrew Selsby at RH Asset Management Limited, as published in the Onassis Newsletter, a fortnightly newsletter that gives insight into the investment markets.

For more from RHAM, visit https://www.rhasset.co.uk/