The dollar bulls have been vanquished again. For the fourth time since the Economic Stimulus Act of 2008 was passed in February 2008, a nascent dollar rally has failed.
In Friday afternoon trading, the dollar was poised to record a 3-cent decline versus the euro for the week, to about $1.5776. The dollar has also fallen about 3 cents versus the British pound to $1.9788, and about 1.2 yen to 103.28 versus Japan's yen.
The kindling for a rally certainly existed earlier in the week: the prospect of 'the beginning of the end' of the worst of the U.S. housing market's troubles, and an interest rate decrease by both the Bank of England and the European Central Bank had emboldened dollar bulls.
Greenback is hit hard
But in the end, as it has so often during these difficult, past eight years for the dollar, the fundamentals reigned supreme, according to Andrew Resnick, currency trader.
"Oil continues to set records, there are few signs pointing to an economic recovery any time soon, and the trade deficit, while its shrinking, is still large. It's difficult for the dollar to rally in this environment," Resnick said. Resnick added that he is dollar-short in the dollar-euro, British pound-euro, and dollar-Swiss franc currency pairings.
The dollar's primary positive, the prospect of a Bank of England rate cut, combined with an expected-pause in the interest rate cut cycle by the U.S. Federal Reserve, had made "a plausible case for a dollar rally," Resnick said. But when trader sentiment regarding the BOE's monetary policy shifted to a stand-pat stance, as well, and oil continued its climb to caviar price levels, the dollar-higher thesis was undermined, and quickly.
Resnick now expects the euro later this summer to retest its all-time high of $1.6018 registered in April 2008. The British pound should hit $2.00 during that same time period, he said.
What could resuscitate the dollar-higher thesis? A sustained moderation in oil prices, a growing U.S. economy, a higher U.S. savings rate, and a decline in the federal budget deficit, Resnick said.
"These are not small hurdles," Resnick added.
Closing Bell: Dubai sends jitters throughout the market (S, BBY)
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Reader Comments (Page 1 of 1)
5-24-2008 @ 10:37AM
cRAIG ANDERSON said...
MONEY IS THE BEAST & THE BEAST WILL BE DESTROYED