US dollar reverse its course or was it a correction.

Currencies aren’t meant for everyone and in some respects they are the ultimate zero-sum game, but if anyone doubted their importance, just look how the markets have changed since the dollar reversed its course and started moving up a month ago.

It is important to note that while the dollar has made a substantial move over the course of the past month that now has it breaking out of a 6 year downward channel (since 2002 till 2008), the dollar’s move is more the result of increasing concerns about foreign economies than it is about strength in the U.S. economy. The bottom line: the U.S. economic outlook has not improved over the past month; instead, things have taken on an even gloomier tone overseas.

But why the sudden breakout of optimism on the dollar?

First, the moderation of aggregate demand in the Euro zone and in Japan, coupled with the sharp increase in the price of oil was accompanied by a precipitous decline in the value of the dollar.

Second, the transitory shift in the global monetary bias from that of inflation to that organized around growth among the major central banks have claimed that the 6 year downtrend (since 2002 till 2008) in the value of the dollar are coming to its end.