THE GREAT DOLLAR BULL RUN HAS STARTED
The US dollar has surged to a four-year high against a basket of currencies and has punched through key technical resistance, marking a crucial turning point for the global financial system.
The index - a mix of six major currencies - hit 87.4 on Monday (11/03), rising above the key level of 87. This reflects the plunge in the Japanese yen since the Bank of Japan launched a fresh round of quantitative easing last week.
Data from the Chicago Mercantile Exchange show that speculative dollar bets on the derivatives markets have reached a record high, with the most extended positions against the euro, the yen, the Australian dollar, Mexican peso, the Canadian dollar, the Swiss franc, sterling, and the New Zealand dollar, in that order. The Swedish and Norwegian currencies are also coming under heavy pressure.
David Bloom, currency chief at HSBC, said a "seismic change" is under way and may lead to a 20% surge in the dollar over a 12-month span. The mega-rally of 1980 to 1985 as the Volcker Fed tightened the screws saw a 90% rise before the leading powers intervened at the Plaza Accord to cap the rise.
"We are only at the early stages of a dollar bull run. The current rally is unlike any we have seen before. The greatest danger for markets and forecasters is that they fail to adjust their behavior to fully reflect a very different world," he said.