It wasn’t long ago that we thought Ben Bernanke and ECB chief Jean-Claude Trichet were playing a high-stakes game of chicken.
Who would blink first? Who would raise rates, and send the other’s currency tanking?
The market — obviously — figured Trichet had the upper hand.
With Ireland, Greece, and Spain all the subject of serious sovereign default concerns, and with Austria now nationalizing banks, the idea of a rate-hike seems utterly laughable. Add in the fact that the continent’s manufacturing base was screaming bloody murder over all the jobs moving to the US, and you’ve got a recipe for a long, long period of low itnerest rates.
And that explains why the dollar is on such a tear.