SBM Inc. identified the potential for the U.S. dollar to fall in January 2002.
The recent rise in the U.S. dollar is a temporary phenomenon - more an artifact of the repatriation of U.S. dollars as hedge funds liquidate their assets on cash calls from investors and banks, and safe haven buying of U.S. Treasuries of late. We don't believe this strengthening will last and the dollar appears to be moving in a bearish direction once again.
The U.S. dollar has been weakening steadily since February 2002. So far, the global and U.S. economies have been able to adjust to the increasing glut of U.S. dollars. The Fed rate cuts since Sept 18th, 2007 have opened the door for a U.S. dollar collapse which could have significant ramifications for the U.S. economy, the global economy, and hence, oil and natural gas demand.
The U.S. dollar could endure a period of significant collapse in value because very low Fed interest rates will make most other currencies look more attractive to a world holding an enormous number of dollars and U.S. bonds that are falling in value. If foreigners stop buying or start selling these U.S. dollars and assets to minimize their losses, the U.S. dollar could fall hard. The U.S. would increase its import inflation and long bond yields would rise significantly, squeezing an already vulnerable U.S. economy hard. If the U.S. is still the main end consumer of global economic production, then a slowing U.S. economy will feed through into a weakening global economy hurting oil demand.
The U.S. Dollar Index is a weighted gauge against the Euro, Yen, Pound, and three other currencies.
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