The Dollar Gets a Boost From US Energy Boom
By Kelley Holland
Through all the static of the global economy, one constant has held true for the past decade: the U.S. dollar has been a counter-cyclical safe haven. It weakens when the business cycle improves, and rises when higher-yielding assets fall (and vice versa.)
The dollar has soared in the new era of good feelings, following strong nonfarm payroll and retail sales data that have economists believing the recovery could be for real this time. The greenback’s strength is likely to continue, meaning it could trade like a growth currency for some time. The shift has implications for currencies, oil, and even equities.
That development would mark a sea change — even in a market as dizzying as foreign exchange, where political events, central bank decisions and plain vanilla tactical investments can affect prices in a millisecond.
David Woo, head of global rates and currencies research at Bank of America Merrill Lynch, has an interesting theory as to why this is the case, and it has to do with the booming U.S. energy market.
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