Out of Control: Rising US Dollar Disbalances Global Currency Trading

Saturday, November 21, 2015
By Paul Martin


A dramatic rise of the US dollar during the past year-and-a-half has rendered the international currency markets less profitable, yet riskier and more volatile, while the scope of open market operations has started to affect the non-financial sectors of the advanced and emerging-market economies alike.

Kristian Rouz – With the US Fed base interest rate hike widely anticipated in December, the US dollar is firmly on the ascending trend amidst rife demand for greenback in currency markets across the world.

While the markets have been buying the hike rumor for past twelve months at least, fueling the imbalances in international currency markets, the wave of currency depreciations in major economies and the Third world alike has triggered massive capital flows into the US, while rife volatility in most currency trading effectively tamed investors’ risk appetite.

The unprecedented accumulation of financial resources in North America has created massive benefits for the US currency managers, but at this point the lucrativity of currency operations in the US is declining due to the ‘safe haven’ status and high prices on most local assets.

Consequently, money managers have started seeking opportunities abroad, which, coupled with markets ‘selling the news’ of the US Fed hike in the coming months, might reverse capital flows in favour of the higher-yielding markets, thus stirring an even greater volatility fraught with possible FX rate crashes in both advanced economies and emerging markets.

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