Money Markets
Greenback no longer one way bet for investors
Despite the losses of the dollar, it remains 7.5 per cent above its record low against the euro at $1.6040 set in July, 2008. Photo/FILE
The one-way bet in the US dollar that has lasted several months may be over for now despite distress over its malaise that has stretched from Washington to Paris.
The dollar recently hit a 15-month low against a basket of other major currencies.
This weakness has become a political football in the United States, as opponents of the Obama administration charge that it shows fiscal policy is hurting the US economy.
Other countries have also become increasingly vocal about the dollar’s decline.
Even Federal Reserve Chairman Ben Bernanke commented on the dollar, saying on Monday that the Fed does watch the dollar’s value.
But the greenback has shown resilience in recent days.
Activity in the options market, valuation measures and a slight divergence in the tight relationship between stocks and the dollar suggest a possible end to dollar weakness.
There is growing nervousness that the rally in risky assets is overdone, with experts questioning whether the rebound in the global economy can go on without government support.
“A lot of good news is already priced in. For the dollar to meaningfully break below these levels, we’ll probably have to see something that adds significantly to the already upbeat outlook for the global economy,” said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
Selling the dollar to buy stocks, commodities and higher-yielding currencies has been a popular trade of late as low US interest rates and an abundance of liquidity have lured investors into riskier assets in search of returns.
The dollar is down 15 per cent since March.
It also hit a 14-month trough versus the euro at 1.5064 in late October.
But the euro’s struggle to stay above the key $1.50 level may be a sign the market is overextended.
The single currency pierced $1.50 for the first time this year on October 21 and closed above it for three straight sessions.
It last hit that level on Monday, trading lately at $1.4852.
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