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
To keep bears on their toes, Bernanke — in rare comments on the value of the dollar — said on Monday that the US central bank is monitoring currency markets “closely” and is “attentive” to the implications of a falling dollar.
His comments, which were backed by European Central Bank chief Jean-Claude Trichet, helped boost the dollar this week.
But analysts caution that without a change on the policy front, the impact of verbal attempts to talk up the dollar are likely to be short-lived.
David Gilmore, a partner at FX Analytics in Essex, Connecticut, called the remarks “an introduction of two-way risk, even if in a fairly discreet fashion.”
He added that there is “nothing credible” behind Bernanke expressing concerns about the dollar as the Fed has pledged to keep interest rates low for an extended period.
To be sure, the dollar still has room to fall.
Despite its losses so far, the greenback remains 7.5 per cent above its record low against the euro at $1.6040 set in July, 2008.
Speculative positioning data also shows that dollar shorts are not at extreme levels, and more good economic news could hasten more bets against the greenback.
Equity rallies
Ashraf Laidi, chief market analyst at CMC Markets in London, said dollar weakness has increasingly become a catalyst for US equity rallies, which look unsustainable given mixed economic news and the recent struggle in oil prices.
“Aside from US dollar weakness, we have yet to see any fundamental dynamic that justifies US indices higher.”
If stocks begin to retreat, the dollar could stabilize, he said.
Some valuation measures also indicate the dollar is becoming undervalued.
Morgan Stanley said the euro/dollar is now 27 per cent too high compared with its median fair value.
Meanwhile the US dollar inched higher on Monday, extending a short-covering bounce as investors pared risk trades in a holiday-thinned week.
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