The Japanification of Germany: Dollar Rally Announces a Change in US Interest Rates

[unhappycamper]

http://watchingamerica.com/WA/2014/09/08/the-japanification-of-germany-dollar-rally-announces-a-change-in-us-interest-rates/

The Japanification of Germany: Dollar Rally Announces a Change in US Interest Rates
Published in Neue Zürcher Zeitung (Switzerland) on 1 September 2014 by Michael Rasch [link to original]
Translated from German by Andrew Oppenheimer.
Edited by Emily France.
Posted on September 8, 2014.

Historical experience shows that the dollar index gains considerable strength six to nine months before a change in U.S. interest rates. While a rate increase is currently not expected until mid-2015, the dollar is already making clear gains.

The euro's decline against the dollar has intensified again in recent weeks. Since its annual high of nearly $1.40 on May 8, the European common currency has sunk 5.7 percent, to approximately $1.32. The past week’s losses were triggered by the speech of Mario Draghi, President of the European Central Bank (ECB), given during the tête-à-tête of international central bankers at a resort in Jackson Hole, Wyoming. Market observers have interpreted his statement as a shift in the central bank's focus toward intensive attention to the labor market and a possible preliminary step ahead of European quantitative easing.

~snip~

Decoupling the U.S.?

Furthermore, the comparison of interest rate structure curves of these three important industrial states indicates the coming Japanification of the German capital market. The interest rate curves of the largest European and Asian economies increasingly resemble each other. This arouses fears among market observers that Europe will develop a long, sustained disinflationary or even deflationary environment. This seems all the more valid as both states experience similar population trends.

The rate structure curve further indicates an increasing decoupling of the American economy from those of the Eurozone and Japan. One question could now be whether the U.S. economy will pull the other two up, or whether the two others will pull the American economy under. In any event, by virtue of the obvious trade ties, interdependencies are self-evident.