Good things for the dollar on mounting expectations that the Fed is seriously debating when to exit its expansive monetary policy in the form of QE won’t necessarily translate to good things for other asset classes. Some high profile bond managers are already saying the bull market in fixed income is over. Spot gold fell for a seventh straight session on Friday , its longest losing streak in four years, as the dollar rose.
Stocks are getting a pop on the expectation that a U.S. economic expansion is going help profits and that optimism is spilling into the dollar but that’s after years of the dollar benefiting from safe haven flows on fear and trepidation. For now, forex trading investors seem to see the U.S. as escaping the great recession at a faster pace than anywhere else after very proactive policies from the Fed. On the other side, with the exception of Germany, there is very little economic life in Europe as the peripherals at the low end of the economic spectrum remain on life support.
Prime Minister Shinzo Abe said on Friday, that the third arrow of Japan's growth strategy will aim to triple infrastructure exports and double farm exports by 2020, as well as boost private investment. The first two arrows involved massive monetary easing and a burst of government spending. But while that may work for the Japanese economy it’s not going to be good for the yen which is probably the point.
All of which leaves forex investors seeing the U.S. dollar as the best currency to rally and perhaps the best place other than U.S. stocks to park their cash. The dollar gained 1.6 percent against the yen last week, its third straight week of advances, leaving the year-to-date rally at 19 percent. The euro fell 1.23 percent for the week, its worst weekly performance since the last week of March.