Ciovaccocapital.com - Mohamed El-Erian is the former highly successful manager of the Harvard endowment and current head of PIMCO. In an August 15, 2008 Bloomberg interview, he makes some comments which may help us to begin to understand the recent surge in the dollar in the face of less-than-ideal U.S. economic conditions.

Currencies move not because they ought to but because they are allowed to. Previously rigid currencies are going to become more flexible because it is in their own interest.” While respecting there are numerous factors influencing the currency markets not covered here, my interpretation of his comments:

The dollar is moving in part because some countries and central banks around the globe want to see it move for specific reasons. Once the move was set in motion, currency traders and money managers saw it and responded to it, which gave the move more momentum. Short covering played a role as well. The dollar’s recent surge was influenced more by orchestrated actions than a change in long-term dollar fundamentals.

We would be remiss if we did not mention the obvious importance in the currency markets of slowing of growth in Europe and the possible impact on interest rate differentials between the dollar and euro. Read More