One of the reasons that the U.S. dollar has remained strong in currency trading on the FX market is to do with the fact that long term Treasury International Capital (TIC) has been rather popular. The greenback has been buoyed in forex trading by the demand for its assets.
China as U.S. debt holder
As one might imagine, the main reason that TIC continues to see high demand is due to China's ability to continue to fund U.S. shortfalls. GFT's Kathy Lien explains in FX360 that China's position as U.S. debt holder is part of the reason that G7 nations were so accommodating at the meeting in Rome this past weekend:
Despite China's own problems and the deteriorating balance sheet in the
US, the Asian giant continues to fund the US deficit. China holds the
purse strings which is part of the reason why the G7 offered a more
conciliatory tone at this weekend's meeting.
As it is, the U.S. dollar has been benefiting from the global economic slowdown, as it is a safe haven in currency trading. The dollar has been doing well against the euro in forex trading and, until now, has also been doing well against the U.K. pound.
It remains to be seen whether this state of affairs will remain after the economic stimulus bill is signed into law today -- and some of the measures are put into practice. Once focus shifts back to fundamentals, the greenback could be in trouble in forex trading.
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