Dollar stronger as speculators consider global economy

By Pete Southern in LiveWire Economics Blog | November 10, 2010 16:09 |

Currency speculators are struggling to make sense of everything happening around them in the global economy. At the moment (November 10), the dollar is in a stronger position following the Central Bank sell off of some 10-year debt at a lower than expected yield.

Relatively strong earnings reports of late, a smaller trade deficit of $44 billion in September, and reduced appetite for risk are among other reasons the dollar has risen against some of its foreign counter parts.

The euro and pound have been fallen back after surging last week to medium-term highs against the dollar. Concerns about the re-emergence of debt issues in leading European economies like Portugal combined with pro-dollar sentiment mid-week have contributed.

One euro is currently worth just $1.3778 after a euro netted over $1.42 late last week. The British pound is holding up a bit better at $1.6081, but it too had climbed significantly last week to over $1.62 late in the week.

One dollar is worth 82.46 yen in early Wednesday morning New York trade. It appears that technical analysts that suggested the dollar would not fall below 80 in the short-term and seemed primed for a reversal earlier this week were accurate.

The dollar is higher against the Japanese currency even as the Chinese government works to appreciate the Yuan ahead of the G20 summit.

A leading cause of this week’s three day losing streak for the euro-dollar and a similar drop for the pound against the greenback is hesitation on the part of aggressive investors.

The European currencies have moved noticeably higher against the dollar in recent weeks as investors have shown more appetite for risk.

In the big picture, dollar firmness is likely attached to the job and housing market as indicators of US economic recovery. The Fed just purchased over $600 in Treasury bonds to spark the economy. This leads most analysts to believe an interest rate hike this year is unlikely.

However, some economists believe it is certainly possible the Fed could step in quickly in 2011 to raise rates if the economy improves and inflation becomes a concern.

Meanwhile, the European Union has expressed a commitment to tighten its monetary policy in belief that it has done what is necessary to stimulate the economies of member countries.


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