U.S. Dollar Finishes Higher for Week after Posting 14-Month Low
After a sharp sell-off earlier in the week, which took a basket of currencies to a 14-month high versus the Dollar, the greenback managed to post a small gain. The strong comeback in the Dollar was helped on Friday by an early sell-off in stock index futures and a weaker than expected consumer confidence figure.
About mid-week, the Dollar was under pressure because of a FOMC minutes report which suggested the Fed had no basis for raising interest rates in the near term, despite comments from Bernanke the week before. The minutes showed that the FOMC was considering increasing the amount of stimulus to help the economy out of recession. Fed Chairman Bernanke implied the week before that the Fed was already considering a tight monetary policy should the economy show signs of recovering. Bernanke’s comments supported the Dollar, but the FOMC minutes gave traders the green light to sell Dollars.
While weakness is in the Dollar seems justified, the pace of the decline should be of some concern because global economic conditions are not that great to warrant an outright attack on the Dollar. At times it seems Forex investors are ignoring weak economic reports and are instead focusing on the upside momentum in the equity markets to be their guide. Taking long positions against the Dollar because of the strength in the stock market could backfire on traders particularly in the Euro if global investors decide to begin limiting their demand for higher yielding assets.
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