When financier George Soros makes a play, traders stand up and take notice. In 1992, Soros made $1 billion by selling the British pound.
Recently, he used the same strategy of betting against the pound. However, when the pound traded below $1.40 last Wednesday, Soros decided to cover his short position. The pound has traded up to $1.4256 against the dollar on Friday. As demand for the pound rose, it had the effect of putting pressure on the U.S. dollar.
Another factor weighing on the U.S. dollar is the Federal Reserve policy. When the Fed announced its easing policy in December, the dollar sold off sharply. Last week, the Fed has said that it is buying mortgage backed securities in an effort to bolster the housing market. Whether it fuels another round of selloffs in the dollar is anyone's guess.
In another development, Paul Mackel of HSBC Holdings PLC (NYSE HBC) said that the pound is sensitive to news from the financial industry. If banks in Britain begin to stabilize it would lend support to the pound. All of this points out how sensitive a country's currency is to its financial health.
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