Monday, June 1, 2009

Dollar's Woes Not Over

The Wall Street Journal - After three months of losses for the U.S. dollar against the euro, what's one more week?

Traders say the dollar, which fell to its lowest level this year on Friday, is likely to continue to trend lower this week as investors sift through a number of key data reports, as well as news from the European Central Bank policy meeting, and react to another round of Federal Reserve Treasury purchases.

The bond purchases may be the key to the dollar's performance in the first part of the week, as they could drive down yields, particularly as the Treasury won't have any note sales this week.

With market rates falling, inflation fears will come to the fore again.

Not that the dollar's chances for a bounce are nil.

"The dollar-positive scenario comes if the Fed allows a bond market selloff to undermine housing," said John Normand, a foreign-exchange analyst at J.P. Morgan Chase. "But officials are unlikely to take this gamble so early in the recovery."

Ultimately, the most vulnerable currency in the near term is the one that is most exposed to quantitative easing.

Given the Fed's commitments on asset purchases, the dollar fits the bill, which will give the euro room to advance after hitting $1.4168 Friday, a level unseen since December

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