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The US dollar is climbing higher as markets are flashing red around the globe. Why?The ICE US Dollar Index, which measures the American currency against a basket of six others, was up 1.4% around midday. The euro -- the dollar's main rival -- was down 1.5% at $1.11.US assets got slammed in a massive sell-off of risk assets, the Federal Reserve cut interest rates and is expected to lower them further. Ordinarily this wouldn't be good for the dollar. But these are hardly ordinary times.
Tensions are beginning to build in the dollar funding markets. The US currency is used in contracts around the world. The impact of a further tightening in US dollar funding markets may echo 2008 in that the dollar might grind higher, more or less regardless of the situation in the domestic economy," said Shaun Osborne and Juan Manuel Herrera, FX strategists at Scotiabank.
Despite the similarities to the 2008 liquidity crunch and companies dashing to bolster their US dollar holdings, things are by no means as bad now as they were then, they added.
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