The dollar Friday was on course to record its fifth consecutive weekly gain, propelled higher by the prospect that economies in Europe may be later in the recession/expansion economic cycle than the United States.
The above suggests the Bank of England and the European Central Bank will have to cut interest rates -- itself a bullish factor for the dollar -- with the U.S. economy recovering sooner than the economies in the United Kingdom and euro-zone -- another dollar-bullish circumstance.
On Friday, the dollar strengthened 1.5 cents to $1.4675 versus the euro, and about seven-tenths of a cent to $1.8632 versus the British pound. The dollar also rose about 1 yen to 110.61 versus Japan's yen and about one-half cent to $1.0988 versus the Swiss franc.
From dollar-bear to dollar-skeptic
Currency Trader Andrew Resnick said he's not a dollar bull yet, but the changing global economic landscape has moved him from the dollar-bear category to "the dollar-skeptic category."
"Clearly, fundamentals are shifting in favor of the dollar. Global growth is slowing, taking pressure off commodity prices. Export gains are lowering the U.S. trade deficit, and there's now a better than 60% chance Europe [including the U.K.] will have to cut interest rates," Resnick said. "Those are the best fundamentals for the dollar in about three years." Resnick added that he's presently flat, or had no open currency trading positions.
During the run, the dollar has appreciated about 8% versus the euro and about 9% versus the British pound.
Still, despite the fundamentals presently running in the dollar's favor, investors / readers "should not conclude that buying the dollar, or assets that benefit from a stronger dollar, is a position without risk, i.e. a slam dunk," Resnick said.
"There's little on the domestic economy side to make U.S. investors feel good, and all it would take is another unexpected, large write-off for housing losses by a bank or a disruption in oil supplies somewhere in the world, to start the negative sentiment stirring again, and the dollar's rise would end," Resnick said. "Which is why I'm a dollar skeptic."
Currency / Economic Analysis: The dollar has strengthened considerably, but trader Resnick took pains to avoid the terms 'dollar rally' and 'dollar trend higher' - - something that should provide pause for thought for those ready to sing "Happy Days Are Here Again" at this juncture, for the dollar and the U.S. economy.
