The US dollar's strength appears to confound fundamental and technical considerations. The cross-currency basis swaps have swung hard from a large dollar premium to a record discount (against the euro, sterling, and yen). No fewer than 10 central banks drew on the currency swap lines with the Federal Reserve, including three from the emerging market economies (Mexico, South Korea, and Singapore). The US two-year premium has collapsed.
The Fed's balance sheet has exploded by over a trillion dollars in the past two weeks. Its asset purchase program is open-ended. The ink was hardly dry on