"The Fed and the Obama administration seem to be pursuing policies that are dollar-negative, and they give no hint of letting up," said John Mauldin (Thoughts from the Frontline). I share this view and alluded to this in July (see "US dollar about to pop") when I pointed out that the devaluation of the greenback was a likely policy tool to stimulate the US economy.
The combination of low interest rates and quantitative easing has made the US dollar an attractive currency for funding carry-trade transactions (i.e. selling low-yielding currencies to finance the purchase of higher-yielding currencies) and spells more downside, at least until the Fed starts withdrawing from its very loose monetary policy.
As investors started assuming more risk since March, the US Dollar Index headed lower, hitting a one-year low yesterday and trading in a confirmed downtrend as far as the key 200-day moving average and other primary trend indicators are concerned.
