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It is May, and traditionally in the May through
August period, there is a correction in the
currencies which have been strong during the
winter and spring months. This is the time of
year when the declining currencies often get a
chance to rally and collect themselves before the
Autumn season when renewed seriousness grips
international currency traders, and the weak
currencies usually begin to decline again.
If the US dollar is going to rally, it should
have begun to do so and its window of opportunity
is shrinking with each passing day. The answer to
the question is probably that many currency
traders believe that the U.S. fundamentals are
not going to improve on a broad basis and
additionally, the U.S. is not raising interest
rates, while many other countries are signaling
upcoming interest rate increases.
This is because the economies of almost all
developed countries, and all of the rapidly
developing countries are growing much faster than
the U.S. economy. With slow economic growth comes
decreased demand for money. With slower economic
growth, money leaves U.S. investments and moves
to foreign shores to obtain better returns in
foreign stocks, bonds, currencies and commodities.
If the dollar is to rally it should do so soon.
The U.S. will be helped by a weaker dollar and
exports will rise, the big question is, will
imports stop rising so fast? If the U.S.
consumers slow down their spending spree, and if
the U.S. slows down the Iraq war spending, then
the dollar can put on an extensive rally. Until
then, any rallies in the U.S. dollar are likely
to be short [for a few weeks] and not very sweet.
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