Forex Investment and Currency Trading

Some thoughts on a significantly weaker USD are:

• The U.S. financial markets and economy led this global deterioration and recovery here will be important in leading us out.
• A stimulative fiscal policy, a stimulative monetary policy, quantitative easing, current account deficit, expanding government deficit, global economic/savings imbalance etc. all argue for a weaker currency.
• While not everybody can have a weaker currency, when it comes to the U.S. it is needed. It is stimulative and could even be inflationary. It makes U.S. assets cheaper. It can help devalue debt to assets rather than the present corrosive picture of assets deflating to debt and destroying household wealth.
• This is not to say that Europe does not have its own problems. However at the end of the day the best dynamic for a European and for that matter a global recovery stems from a U.S. recovery. Without the U.S. recovery we suspect the global recovery will be a non-starter.
• It is not convinced that you can expect the USD (Or the JPY for that matter) to perform the same way during an economic de-leveraging as during a financial de-leveraging. During the financial de-leveraging since July last year the USD and JPY were not “strong” they were “in demand”. Up to then they were the favoured “funding currencies” and the credit squeeze/financial de-leveraging caused this demand. Now both currencies need to be weak for different reasons (Japan to help an export led economy during a collapse in global trade- The U.S. to help cheapen asset markets versus debt in a period of severe asset deflation/household wealth destruction.)
• As a consequence a weaker USD is likely the lesser of evils for everybody concerned including Europe.