Analysis says there is liquidity hoarding in the markets. So there is plenty of dollars but people stay in cash. Offer of dollars goes down. Demand for dollars is a fairly constant thing, for example with all oil being $ denominated. I don't buy that demand for dollar assets is going up, but rather that investment is retracting to local plays.
So offer is going down and demand is staying up so dollar is rallying short term. Long term, I am of the opinion that monetary levels are still the fundamental and it may be that the supply put in place by the US finally flood the markets.
The bottleneck still rests with the banks, from the FT this morning, one of the reasons is that the Govt pay an interest on cash held by the bank treasuries with the central banks and therefore the banks have little incentive to lend the money out.
The point is that if a particular bank’s treasury executives know that interest can be earned on a balance at the central bank they are under less pressure to lend out that cash to other banks.
The USD rally may be a result of this structural constipation.