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BBH: U.S. dollar under pressure; balance sheet for Fed grows faster than other central banks

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(Kitco News) - The U.S. dollar remains under pressure, perhaps because the Federal Reserve’s balance sheet is growing far faster than central banks of other major economies, said Brown Brothers Harriman. The September dollar index early Tuesday fell as far as 97.395, its weakest level since mid-March. “There is a debate as to the root causes of recent dollar weakness,” BBH said. “Is it the burgeoning national debt? The poor U.S. economic outlook? Political risk from widespread social unrest here in the U.S.? All of these (and perhaps more) have contributed to the dollar’s swoon. But being old-fashioned as we are, we default back to relative monetary policy as the major driver of currency movements.” Interest rates are pretty much at zero in the developed world, BBH pointed out. However, balance sheets of the Fed, European Central Bank and Bank of Japan tell a story, analysts continued. “The Fed’s balance sheet has grown 70% since the end of February versus 18% for the ECB and 8% for the BOJ,” BBH said. “Simply put, the Fed has been much more aggressive with its QE [quantitative easing] than any of its counterparts.” Metals traders tend to watch movements in the dollar since base and precious metals alike often move inversely to the U.S. currency.

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