Where is the US strong Dollar Policy?

On the global currency frontier, continued weakening of the US dollar against the major traded currencies like euro, pound, Canadian dollar and the yen has been creating much debate among currency strategists whether to let the US dollar find its own ground or to mediate. Analysts, according to Bloomberg, also have a view that if the ‘Greenback’ is allowed to fall too rapidly then investors would dumb the dollar backed assets. In-fact the dollar has depreciated much to the extent of 10% against some currencies i.e., the euro and the Indian Rupee, as recently noted by Asia-Pacific Head, Mark Mathews of Merrill Lynch. The emerging market currencies also appreciated considerably on account of huge capital inflows and the rise in demand for their domestic assets and currencies from overseas investors. With the ever increasing importance of Renminbi (Yuan) as a major Asian currency, the US dollar seems to have been taking a back seat.

The Japanese Yen's appreciation against the US$ (trading at 113.10/$) has seen unwinding of the carry trades, where one usually borrow cheap and invest in higher yielding assets. China is contemplating that the continued fall of the US dollar is eroding their asset holding valuations in the US, and are now being highly pressurized to devalue the Yuan, which has gained around 12% against the dollar since it got unpegged, thus creating a huge trade deficit with the US. According to China, US should manage its own 'house' rather than sniffing on the Chinese kitchen'. China has also questioned about the unsustaining US strong dollar policy, and about the continued fall in dollar that is causing oil price and commodity price rise.


It seems that the $ is loosing its glare since it's continued fall, as the Euro has been favored as an alternative in the international forex/import-export market, since more traders seems to be moving to Euro as their currency of choice. And on the same frontier, the US has nearly failed in her strong dollar policy, according to global anlaysts and reports published in Bloomberg and others. However, currency strategists have a view that since the US is still the largest market for investments, operating business and the biggest export market for the emerging economies, this is a short term depreciation as dollar may roll back once the financial markets become more stable.