It may be sudden and drastic…
Interest rates will go up. Puff goes the American housing market. Down goes the dollar.
All of which is to say that there is a lot less support to the dollar than meets the eye. The dollar is simply GM in waiting. U.S. bonds are distressed debt owned increasingly by fund managers desperate to eke out a few basis points here and there. This is not the bedrock of a strong rally in a currency.
The dollar is a long-term sell. But if not the euro, what will it fall against next? Well, while the dollar rally story is shallow, the commodity bull story is still deep and rich.
When the dollar falls again – which it will – it will also fall against Asian currencies, especially in anticipation of a yuan revaluation by Bejing. It is possible, of course, that the dollar can remain stronger for longer than anyone expects. But the whole currency regime can come crashing down much more quickly than anyone expects as well.
It doesn’t happen often. But it does happen, and when it does, it happens despite the fact that most people think the world will always work the way it works today.