Chungwoo: A reprieve for the Dollar?

The last two years have witnessed a veritable collapse in
the value of the Dollar, which has declined over 25% against the Euro, alone. While opinion remains divided, many analysts
are predicting a (temporary) cessation in the Dollar鈥檚 downward slide. The reasoning is that the worst possible
scenario involving the American housing crisis has already been priced into the
Dollar. Furthermore, experts argue that
the inevitable loosening of American monetary policy will help boost the
American economy by preventing it from slipping into recession. Finally, there is the notion that China will
begin to take steps to appreciate its currency relative to the Euro, which has
actually risen against the RMB. The law of
triangular arbitrage requires that any rise in the Euro against the Yuan must be
matched by a proportional rise in either the Dollar/Euro or the Dollar/RMB rate,
the latter of which seems unlikely. Dow Jones reports:



There is also the possibility that official Chinese
purchases of the euro could decline after last week's visit by a delegation
from the European Central Bank to Beijing, anxious to reduce upward pressure on
the single currency.



Read More: Chances Of Dollar Bounce May Be Rising