Is a virtuous cycle in store for the US dollar?

This week is payrolls week. Friday's US Non-farm payrolls report is the measure of what is in store but the private company, ADP, which caters for the wage and salary requirements of a large proportion of US businesses, will publish on Wednesday its monthly analysis which always anticipates the Statistics Bureau's spotlight on the state of the US labour market.

These figures will be very closely watched this month.

Nobody can tell the future but there must be many in the US administration whose daydreams contain something akin to the virtuous spiral depicted in the graphic above. Mr. Bernanke has let it be known that he will cut into Quantitative Easing as soon as unemployment starts to drop. Already the USD is getting stronger on the suggestion that QE might be on the way out.

When and if the stimulus is gone, the next worry will be inflation. To counter that threat interest rates, after being a non-issue for the US economy for so long, will again come into the equation.

Of course, if this scenario does play out, it will not happen in a smooth translation. There will be upsets and disappointments, which will manifest as retracements of the entity that concerns us the most, the chart of the value of the Greenback against other currencies.

Still, it is an interesting ride. You might even say a fascinating one.