Norman: Yeah, he’s a hawk on the FOMC. There’s others who are not quite as hawkish as he is. But let’s assume the Fed changes its policy stance. Let’s say it says the easing is over, we’re not going to start to nudge rates up. We’re looking at rates now at zero to, you know, some 10 basis points or whatever. I mean, if they make a move, what sort of adjustment in the forex market can we expect? Because rates are still going to be very, very … I could understand it’s sort of a kneejerk reaction initially, because this would represent a major change in policy over the last 2, 2-1/2 years. But then what?

Michael Woolfolk: Well, I think that you have nonfarm payrolls in positive territory. That opens up the window where the Fed feels that it can begin raising interest rates. Certainly once it’s completed its quantitative easing measures, let’s say by the end of the first quarter of this year, then you’re probably past the comfort zone of European politicians who do not want to see any further euro strength.

So consequently, I think that by the time the end of the first quarter rolls around, the Fed not only has a window wide open, they’ve completed their quantitative easing kind of sunset, and they’re looking to further tighten policy. And raising interest rates, of course, would be the next step. I think they can begin by preparing the market at that point in the early spring by coming out and starting to change the language somewhat.

And, as a result, that’s when you should expect to see the dollar begin to rebound. The dollar can begin rebounding against the European currencies well in front of a rate hike if they convince the market that their intentions to hike interest rates in the near term and the economy are strong enough, moreover, to handle it.

Norman: All right, there you have it. So weakness in the first half of 2010, parlaying into strength in the U.S. dollar in the second half on a shift in Fed policy. That’s it for this portion of my interview with Michael Woolfolk, but we will be back for more. This is Mike Norman, signing off for now. Take care.