2008: Time to Buy the Dollar?

The Bundesbank recently revised its forecast for German growth next year to below 2%. The Japan's official forecast is for it to expand by 2% next year. The chances that either the ECB or the BOJ are able to raise rates again appear to be dwindling with every new piece of economic news.

As I have argued here before, the risk is that the ECB is forced to cut rates toward the end of the first half of next year.

In some ways Japan is in a more difficult position. Even with the longest economic expansion in modern Japanese history, the central bank has been unable to normalize monetary policy, and the government has been unwilling to normalize fiscal policy.

The overnight interest rate target is 50 basis points, so there is not a great deal of scope for government or central bank policy to preempt or mitigate an economic downturn, which is looking increasingly likely, especially for the domestic economy (excluding exports).

Despite its imperfections and excesses, in the coming months, the attractiveness of the U.S. as a point of production and sourcing, and its assets (real and equity), may reemerge as the topic of cocktail conversations.

You heard it here first.

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