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The U.S. dollar continued to hold steady against most other major global currencies on Monday despite very dovish comments from the Federal Reserve Chairman Ben bernanke. If you aren't a Fed-watcher, "dovish" means that rates are likely to stay flat or decline in the near term.Usually, low rates are bad for a currency and with the dollar's free-fall this year it is a surprise not to see that trend continue. At this point, it may be that traders have priced in as much of a decline as they think is possible in the near term.
The value of the dollar has two different meanings. The first is its purchasing power. When the dollar loses purchasing power, we call it inflation. Despite dire warnings across the financial spectrum, we still haven't seen that happen this year. The second way the dollar can lose value is relative to other currencies.
Losing value against other currencies is not always a bad thing. In fact, a weaker dollar can be very good for exports from the U.S. and stocks as diverse as Boeing (BA) and Cisco Systems (CSCO) can benefit. A cheaper dollar makes U.S. manufactured products relatively cheaper (and therefore more attractive) to foreign buyers.
Ultimately, a dollar that is rising in value probably poses the most risk to gold investors. Gold has a very strong negative correlation with the dollar. Considering that gold is at all-time highs, a rising dollar could pop that bubble and leave a lot of gold-bugs with losses in the near term.
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