The Federal Reserve ended quantitative easing this week. And soon it will start tightening monetary policy with interest rate hikes.
This is coming as central banks in the rest of the world maintain loose monetary policy or even go as far as to loosen monetary policy further.
All of this is bullish for the US dollar relative to other major currencies.
Business Insider recently asked the smartest people in finance for what they considered to be the “most important charts in the world.”
Without hesitation, former global macro fund manager Raoul Pal sent us a long-term chart of the US dollar index.
“The chart of the US dollar is by far and away the most important chart on earth,” said Pal who is author of The Global Macro Investor
and founder of
Real Vision Television. “If we break the trend line we will be entering potentially one of the biggest dollar bull markets in decades, if not ever. This would be the biggest technical break in the history of fiat currencies.”
The US dollar is involved countless amounts of international transactions around the world. In the financial markets, it’s used broadly in what’s called a carry trade. Simply put, a carry trade is one where a trader sells one asset and uses the proceeds to buy another, in this case selling one currency to buy another.
“Considering the dollar is the world’s funding currency this has the ability to create havoc on the unprecedented $US5trn carry trade — with China at the epicentre,” Pal said.
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