Why the dollar is so weak (and why it will continue)

Author: Adam Button | Category: News

Rates rising, stocks rising, economy improving... USD falling?


Ok, the US dollar is a bit stronger today but over the past year it's the cellar-dweller.

Why? It's all about capital flows.

The dollar rose for years as European investors fled to the US but now then trend is reversing.

Business Insider Australia has some great commentary from George Saravelos, currency strategist at Deutsche Bank on US dollar weakness and why it will continue. It's stuff that's been floating around for awhile but he puts it very well.

"Looked at from a flow perspective, the dollar bear market makes complete sense.

"The US basic balance - the sum of the current account, portfolio balance and foreign direct investment flows - peaked last year and is on a steadily declining trend.

"The European basic balance, in contrast, is shooting up," he says, pointing to the chart below showing the contribution of foreign direct investment, current account and portfolio flows to total capital flows to the euro area.

They expect to see EUR/USD hit 1.30 this year.

This line of thought makes a lot of sense to me. You can read the full article here.

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