By James Saft
(Reuters) – For all the dysfunction in Washington we could, it seems, be in the midst of an historic and potentially extended bull run for the U.S. dollar.
The dollar is up a bit less than 4.0 percent over a year against a trade-weighted currency basket, in substantial part because of economic weakness, fragility and radical policy in places like Japan, Europe and Britain.
It is remarkable that we should be entertaining the idea of an extended dollar bull run on the eve of “sequestration”, a program of mandatory federal budget cuts that highlights both U.S. fiscal and political weakness.
Currencies are a relative game, however, and things elsewhere, as you may have heard, are not so hot.
Silvio Berlusconi’s resurgence and the mess that is Italian politics are a timely demonstration that the euro has plenty of fundamental reasons to be weak. And the potential for truly radical monetary policy in Japan under the government of Shinzo Abe indicates that the yen’s fall could be extended and deep.