When in doubt ask The Economist
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The dollar’s recovery is a little harder to fathom. After all, the origins of the credit crunch lie in America’s housing bust, which has resulted in huge losses for banks worldwide on securities backed by souring American mortgages. The crisis intensified because of the failure of an American bank, Lehman Brothers. And America itself relies on the kindness of strangers to keep its show on the road: it ran a current-account deficit of 5% of GDP in the second quarter. These reasons not to like the dollar are trumped by its enduring appeal as the world’s reserve currency. Jittery investors want to be able to turn their assets to cash quickly and America’s bond markets are the most liquid in the world. It is likely that the dollar has also benefited from a repatriation of funds by investors at home. Before its recent rally, the dollar (like the yen) looked cheap on conventional benchmarks, such as purchasing-power parity: at least some bad news had already been priced into America’s currency. The sell-off in sterling and the sharp drop on European and Asian stockmarkets suggests that the troubles of rest of the world are only just beginning.
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http://www.economist.com/finance/dis...tures_box_main