I’ve became almost obsessed with the theory of a dollar decline approximately two months ago, when I read several papers linking the U.S. astonishing current account deficit (one of my previous articles) with possible correction of dollar. As you can see from the links in that October article the dollar correction of 3% to 7% per year would be necessary to slowly unwind the deficit.

Thus said, I’ve put my own money where my mouth is. My purchases then were various foreign bond funds as well as funds run by some professional currency speculators with bearish attitude toward dollar.

dollar decline chart

Please click the picture to see the bigger chart p0rn. On this chart you can see the decline of the dollar against Euro, Pound, Yuan and Yen.

What’s funny, the plot started with the rumour. Friday, Nov 17 it was a rumour that a large hedge fund, possibly Citadel, is losing on some risky positions and is unwinding the yen carry trade. Citadel denied the rumour, but the started dollar decline did not stop.

Then, all the week of Nov 19-23 the dollar was falling against euro and yen for no immediate fundamental reason except that this move was overdue. Then, apparently, foreign bankers started discussing who will save the dollar. Friday Nov 23 the major Eurobank representative spoke and said that they don’t worry until dollar is 1.50 against the euro. Oh-oh.

Next monday Bank of Japan jumped the gun. The obvious intervention of BOJ stopped the dollar decline against yen, but then yen started falling against the euro.

All the week of Nov 26 was marked by a spectacular sequence of horrible economic news coming from US. Then the dollar demise suddenly became very reasonable.

Two days ago I saw some economics chat on CNBC. The host and his guests were all saying that U.S. economy is very good and next year will be even brighter. They all were very hysterical about that. Suddenly I understood that they all already shitted their pants.