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8 Mar 2013
Forex Flash: A change of regime - Societe Generale
Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that the dollar lost over half of its value between the Plaza accord being signed in September 1985 and March 2008.
he continues to add that from the tail end of the Paul Volcker era at the Fed, the bias has been to ignore asset price inflation, ignore debt and ignore trade deficit using lower rates to revive domestic demand under all and any circumstances. Juckes writes, “Helped the dollar’s status as the only real reserve currency in the world, this policy actually helped asset prices as FX reserves grew to absurd levels. No wonder a generation of FX strategists grew up structurally dollar bearish.”
However, he notes that there was only one period during this time when the dollar staged a meaningful recovery –from 1995 to 2000, as it bounced in unison with higher equity prices on the coattails of the US economic recovery. While he feels that there are key differences between the world then and now, there are enough similarities to suggest that we are again at the start of a long period of dollar strength. He finish by adding, “In 1995-2000 a strong dollar was felt by the yen most of all, and caused capital flows to emerging markets to reverse.”
he continues to add that from the tail end of the Paul Volcker era at the Fed, the bias has been to ignore asset price inflation, ignore debt and ignore trade deficit using lower rates to revive domestic demand under all and any circumstances. Juckes writes, “Helped the dollar’s status as the only real reserve currency in the world, this policy actually helped asset prices as FX reserves grew to absurd levels. No wonder a generation of FX strategists grew up structurally dollar bearish.”
However, he notes that there was only one period during this time when the dollar staged a meaningful recovery –from 1995 to 2000, as it bounced in unison with higher equity prices on the coattails of the US economic recovery. While he feels that there are key differences between the world then and now, there are enough similarities to suggest that we are again at the start of a long period of dollar strength. He finish by adding, “In 1995-2000 a strong dollar was felt by the yen most of all, and caused capital flows to emerging markets to reverse.”