The following is an excerpt from Agustino Fontevecchia | January 9, 2012 | Forbes.com |
The greenback is set for a comeback in 2012 as the U.S. dollar index reaches its highest point in over a year. Fund managers, foreign central banks, and sovereign wealth funds have reversed their portfolio rebalancing in the face of stronger U.S. equities and a recovering economy vis-à-vis Europe, fueling a rally in the U.S. dollar.
Many arguments have been used to explain dollar weakness, from Fed Chairman Ben Bernanke’s debasement of the currency via QE to the inherent weakness caused by a massive, and rising deficit. According to UBS’ Syed Mansoor Mohi-uddin, “the conventional wisdom [regarding U.S. dollar weakness] is wrong,” though.
U.S. dollar weakness has been a consequence of a decade-long move away from the greenback by the three largest dollar holders in the world: U.S. fund managers, foreign central banks, and sovereign wealth funds. And this move is coming to an end, or at least a pause, according to Mohi-uddin.
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