In the first week of Jun, 2008, we viewed that if US dollar extends its slide, many economies might face a daunting task of high inflation coupled with lower growth rates (an economic situation termed as stagflation). The solution was to let the US dollar get stronger and thus cool the global inflation that had been raising like mercury from the start of 2008. We never thought that our prognosis would be respected by markets so soon and within a span of just 3 months, the pendulum would shift in the favour of the Dollar. Suddenly the global financial markets started considering US dollar the better amongst the worst. Euro tumbled by almost 10% from its peaks of $1.6038 and UK’s Sterling pound witnessed its worst slide since 1992, when Britain came out of the Exchange Rate mechanism. It’s now trading around $1.83 at the time of finalising this article from its peak of $2.0153 in mid July. Oil prices have receded by almost 24% back from their highs of $147.27 reached on Jul 11, 2008 and gold is struggling to hold above the $800 /oz mark.

  In just over the first few weeks of Aug, 2008, we saw that the same credit crisis that had once threatened to force US economy to its knees has been strangling the other two major economies (UK and EU) pretty hard. Now the recession talks are encircling the UK and Euro zone. Almost all the economic data coming from US are better than expected; while those from UK and Euro-zone have been hitting rock bottom. It is expected that the US Gross Domestic Product (2Q P) would be revised to a whopping 2.8 percent from initial estimates of 1.9 percent, reflecting the stronger-than-expected exports in the month of June. The sliding oil prices, stabilizing homes-sales and investor optimism are likely the additions to this revision. The National Association of Realtors (US) reported on Monday that home sales rose 3.1 percent to a seasonally adjusted annual rate of 5 million units, up from June's downwardly revised rate of 4.85 million units. Sales had been expected to rise 1.6 percent.  

However in the same time period, data revealed that Germany (largest economy in the Euro-zone) corporate morale fell by more than expected to a 3-year low in Aug, 2008.  The widely tracked business index termed as IFO business climate index, (based on a monthly poll of some 7,000 firms), fell to 94.8 from 97.5 in July; the lowest reading since June 2005. This was in addition to the confirmation that German GDP contracted by 0.5 percentage points on the quarter in the April-June period. These data feeds purport the chances of possible recession in the Euro-zone, which could force the European Central Bank (ECB) to cut interest rates in its coming meetings.