In theory, this difference could dent demand for dollar-denominated assets. But in watching currencies, you have to balance economic theory with the gambling interests of the herd. All kinds of things that are supposed to work in theory lose out to crap-shooting instincts. Consider America's current account deficit, now a stunning 4.5 percent of total economic output. One shouldn't predict foreign exchange.
Central banks can manipulate it.
You can only predict the policies of central banks. That's not easy. Japan has a huge current account surplus. A nation with such a surplus shouldn't have to worry about capital fleeing the country, but Japan is worried, and that's why, as sick as its economy is, it doesn't want its yen to drop sharply. Japan is in the process of choosing another prime minister, and the next one will raise the nation's status in global financial eyes, says Sohn.