The Wall Street Journal reports,"Contrasts in monetary policy signals around the world are accentuating a future rebalancing of monetary conditions that will favor the dollar. After the Fed indicated a subtle expediting in its expected timetable for raising interest rates last week, officials from the European Central Bank on Tuesday offered their strongest hints yet that they will take monetary easing steps to ward off deflation in the euro zone. Meanwhile, the People’s Bank of China has significantly softened the yuan as it fights a slowdown in its domestic economy and moves to subject the currency to more market forces, while there is no sign that the Bank of Japan is abandoning its monthly purchases of bonds.
Combine this with the constant decline in the U.S. trade deficit, as American oil and gas production reduces the need for imported energy products, and you get what some see as a perfect storm for a stronger dollar. That’s how it should be – other than perhaps the U.K., the U.S. economy is looking the healthiest of the world’s major economies. The problem is that the relative outperformance doesn’t say much. Millions are still unemployed and manufacturers continue to struggle. The danger here is that U.S. producers up the ante and lobby Washington for responses to mitigate competitive pressures from overseas. Already, U.S. officials are quietly complaining to Beijing about the weaker yuan. Let’s hope it doesn’t go beyond rhetoric and the rebalancing is allowed to occur naturally".
