The comeback of the beleaguered dollar continues.

The dollar strengthened to a six-month high versus the euro Tuesday, and also rose against the world's other major currencies on a growing consensus in foreign exchange circles that global economic fundamentals are shifting in favor of the greenback.

The dollar strengthened about 1.5 cents to $1.4465 versus the euro, and about 1.4 cents to $1.7877 versus the British pound Tuesday at mid-day. The buck also gained one-half yen to 108.62 versus Japan's yen.

Pivotal for dollar: Europe, Asia GDP

Further, although Tuesday's dollar catalyst was the realization that Hurricane Gustav would cause considerably less-than-forecast damage to Southeast U.S. oil production and the refinery infrastructure, trader Andrew Resnick told BloggingStocks the longer-term focus remains regional GDP growth.

"With Hurricane Gustav out of the way, sentiment's building that this dollar rally has legs. European growth has slowed to recession levels, and China's economy has slowed as well. For Europe, lower interest rates are likely to follow, and that's dollar bullish," Resnick said. Resnick added that he expects the Bank of England to cut its benchmark interest rate by a quarter-point to 4.75% when it meets September 4. He doesn't expect the European Central Bank to lower its 4.25% refinance rate on September 4, but that stand-pat policy may change to accommodation, later this fall.

The dollar's rally resumed Tuesday, but for reasons that may give stock investors cause for concern, at least short-term.

The U.S. economy didn't propel the dollar higher -- the economy is in its worst condition in at least a decade. Nor did the prospect of rising interest rates strengthen the dollar -- the U.S. Federal Reserve has taken a pause in its rate-cut cycle, but may have to cut rates again this fall, if the U.S. economy weakens further.

The catalyst for the dollar's renewed rally? Concern that Europe's economy will fall into a recession, compelling the European Central Bank to cut interest rates, which would make the dollar more-attractive.

Traders increased their positions in the dollar Tuesday after Germany's most-widely followed index of business confidence, the Ifo institute's business climate index, fell to a three-year low of 94.8 in August from 97.5 in July, Bloomberg News reported Tuesday.

On the heels of the above report, the dollar strengthened 1.5 cents versus the euro to $1.4593, and 1.8 cents versus the British pound to $1.8352. The dollar also rose about one-half yen to 109.79 versus Japan's yen.

Currency trader Andrew Resnick, a dollar skeptic due to the dollar's many false breakouts to the upside, told BloggingStocks Tuesday he'll become a dollar bull if the rally holds through the U.S. Labor Day holiday period. Resncik added that he's presently flat, or has no open currency trading positions.

Japan's yen resumed its rise against higher-interest currencies Thursday, suggesting that the prospect of additional credit market losses continues to lower investors' confidence in global growth and performing assets.

The yen rose as institutional investors continued to decrease their use of the carry trade.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) and buy assets in a country where returns are higher. The investment can take many forms, including stocks, bonds, funds, or even the higher-interest currency itself.

The yen strengthened about 1.6 yen to 160.71 versus euro, about 3 yen to 201.95 versus the British pound, and about 1 yen to 108.20 versus the dollar.

Another big mortgage write-off ahead?

Currency trader Andrew Resnick told BloggingStocks Thursday sentiment is building in the foreign exchange and other markets that there will be "another, major housing-related write-off by a bank or series of banks in the U.S. or U.K, or possibly Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) problems."

Some market signals are well-known and easily understood. Others are arcane and more-complex, but just as telling.

There's mounting evidence that the "carry trade" is ending, or that at least institutional investors are decreasing their use of it as an investment tactic.

In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) and buy assets in a country where returns are higher. The investment can take many forms, including stocks, bonds, funds, or even the higher-interest currency itself.

Carry trade: A growth confidence indicator

Now, investors/readers may legitimately ask, Why is it important to know what's happening to the carry trade?

Economist Peter Dawson told BloggingStocks that it's important to monitor carry trade flows and data because it's one indicator of investor confidence in a market's ability to produce a return on equity, and by extension, in its economy to grow.

In other words, the carry trade abounds when investors are confident; it wanes when they're not, he said.

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.

The much-maligned, beleaguered dollar -- driven lower for nearly a decade by series of unconscionable mistakes by United States' policy makers, may be poised to make a comeback.

But don't try to put those words into the mouth of currency trader Andrew Resnick. No sir. Dollar what? Resnick remains the skeptic of skeptics. There have been too many false break-outs and weak rallies that proved to be mere corrections in the euro's decade-long rise, in Resnick's view, to conclude at this juncture that the worst for the dollar -- and, by extension, for the United States -- is over.

A strong week for the greenback

That said, the week's data points are compelling. The dollar registered its biggest gain in two months against the euro, strengthening to $1.5006 -- or an improvement of almost 3.7% -- an enormous move in the currency market for one week. The dollar also strengthened about 2.1% versus the British pound to $1.9208, and about 2% versus Japan's yen to 110.08 yen.

What has caused the sudden turn of events in the currency market? (We don't want to use more-positive adjectives just yet.) Not the health of the U.S. economy, according to Resnick.

Investors have watched the precipitous fall in the U.S. dollar over the past few years with trepidation. Investors in Israeli stocks trading in the U.S. have witnessed the once-lowly shekel dominate the dollar (and most other global currencies) over the past two years. It looks, at least from some uber-investors' perspectives, that the dollar may be set to reverse -- a boon for those companies with significant sales in the U.S.

Bloomberg has an article out this morning saying that bond guru, Bill Gross, the manager of the world's largest bond fund, the $129 billion Pimco Total Return Fund, has turned negative on the euro for the first time since its inception in 1999. According to the article, Gross's firm, Pimco, believes that according to purchasing power parity, a measure used to account for differences in exchange rates across countries, the euro is overvalued by 30%.

And Gross isn't the only one who is concerned that Europe may suffer a bigger slowdown than the U.S. in a world confronted with slowing growth and financial snafus. The same Bloomberg article says that according to a recent poll conducted by Bloomberg of global strategists, many think that the euro has seen its day and that the dollar is poised for a rally (hard to believe in the face of Fannie Mae and IndyMac).

Europe's Trichet-led Central Bank has signaled that it may be done raising rates. In fact, given the choice between fighting inflation and re-energizing a sputtering economy, some are betting that the ECB may need to actually lower rates. With a Fed-led plan to bailout the U.S. banking system and the bottoming out of the dollar, it looks like Gross and Co. are betting against the euro for years to come.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

The dollar Friday was poised to record its largest weekly gain versus the euro in three years, on a growing consensus that the U.S. Federal Reserve will increase interest rates soon to check rising U.S. inflation.

The dollar traded up about one-half cent to $1.5372 versus the euro early Friday afternoon - - a level that if sustained at the New York close at 5 p.m. EDT would give the greenback its biggest weekly gain since early 2005, Bloomberg News reported Friday.

The dollar also rose Friday against the other major currencies. The dollar increased about one-half cent to $1.9494 versus the British pound, and about sixth-tenths of a cent to $1.0476 versus the Swiss franc. The dollar was unchanged versus Japan's yen at 107.90 yen.

The dollar plunged Friday after Morgan Stanley said oil prices could rise to $150 and after data indicated the U.S. employment rate surged to 5.5% in May.

The dollar fell one cent versus the euro to $1.5694 and about three-quarters of a cent versus the British pound to $1.9640. The dollar also declined about one half-yen to 105.55 versus Japan's yen.

A Morgan Stanley report ended what had been a mild dollar rebound over the past week. Morgan Stanley said oil prices could rise to $150 per barrel, due to Asia's likely accelerating purchase of Middle East oil exports, Bloomberg News reported Friday. Oil surged $6.54 to $134.54 per barrel in early trading Friday, on top of Thursday's large $5.49 gain.

Also Friday, the U.S. Labor Department announced that the nation's unemployment rate surged to 5.5% in May from 5.0% in April, as U.S. companies continued to cut expenses to protect profits in the face of the economic slowdown.

So much for the (latest) dollar rally

Currency trader Andrew Resnick told BloggingStocks Friday the oil/unemployment double-whammy would be tough for a strong currency to withstand, let alone the fragile dollar.

"We were experiencing a modest dollar rally, and there were signs of strengthening dollar-bullish sentiment. The Fed may raise interest rates and oil prices up until a few days ago were trending lower on the belief global oil demand will drop off. But the dollar-bulls have been defeated again," Resnick said. He added that he was presently flat after being stopped out of dollar long positions in the euro-dollar and British pound-dollar currency pairings.

Further, Resnick said the Thursday/Friday events underscores how hard it is for the market to sustain a dollar rally in the face of dollar fundamentals that have remained decidedly negative for more than four years.

"It's the old problem of the terrible twins, the U.S. trade deficit and the federal budget deficit," Resnick said. "People had talked up the ability of the dollar to gain support on [Fed Chairman] Bernanke's interest rate pause, but the fundamentals laid waste to that sentiment again," Resnick said. "Until the deficit numbers show steady improvement, and the [U.S.] economy starts to grow, it's hard to see the dollar sustaining a rally. The economy is simply too weak right now."

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.

So much for that nascent dollar rally.

The dollar fell against the world's other major currencies Tuesday after the International Monetary Fund cautioned that the U.S. housing slump still poses "serious risks" to financial markets and ZEW President Wolfgang Franz said he thought the ECB would increase interest rates in the near future, Reuters reported Tuesday.

The dollar fell 1.2 cents to $1.5649 versus the euro, about 1.5 cents versus the British pound to $1.9642, and about one-quarter yen to 104.10 versus Japan's yen.

Earlier in the day, IMF First Deputy Managing Director John Lipksy, in prepared remarks, said the IMF still sees "serious risks" to the financial market from the U.S. housing slump -- the U.S.'s worst housing decline in more than 15 years. Lipsky said the housing slump in the world's largest economy is yet to run its course.

Meanwhile, ZEW President Wolfgang Franz jolted the currency market Tuesday by saying he thought the European Central Bank would increase interest rates in the near future.

The dollar rose Monday against the world's other major currencies, despite the fact the European Central Bank's president reiterated his concern about rising euro-zone inflation, which suggests there's little chance for an interest rate cut soon on the continent.

The dollar rose about 1 cent to $1.5511 versus the euro and about 1.2 cents versus the British pound to $1.9455. The dollar also gained about one-half yen to 104.68 versus Japan's yen.

The dollar rally occurred despite the fact that ECB President Jean-Claude Trichet reiterated to BBC Radio his concern about rising inflation, and its structural impact on Europe's economy, saying that "price stability ... is the best way to have a high level of sustainable growth and sustainable job creation."

Trichet's intransigence

Despite the U.S. economic slump, which has slowed economic growth both in Europe and in other developed-world markets, the ECB, unlike the U.S. Federal Reserve, hasn't budged regarding short-term interest rates, and kept its key rate at 4%. The ECB has cited the threat to inflation posed by rising oil prices, among other factors, as the primary reason for its stand-pat policy.

Macroeconomic factors are beginning to hint about a change in the dollar's fortunes, pun intended, if a new survey is any indicator.

Still, that doesn't mean that the United States does not have work ahead to right its economic ship of state, so says one economist.

The Bloomberg Professional Global Confidence Index's dollar expectations component rose to 57.6 in May 2008 from 42.87 in April 2008, and 30.3 in March 2008. A reading above 50 indicates respondents expect the currency to appreciate in the next six months. The poll surveyed 3,447 Bloomberg terminal users.

In late Wednesday afternoon trading, the dollar rose slightly against the world's other major currencies, rising about a fifth-cent to $1.5446 against the euro, and a quarter-cent to $1.9435 against the British pound. The dollar also rose about one-half yen to 105.35 against Japan's yen. The dollar hit an all-time low versus the euro of $1.6018 on April 21, 2008. The euro has appreciated about 100% versus the dollar since 2000.

Activity in the futures market may be pointing to a dollar rally, but that rally is off to an inauspicious start.

The dollar Monday fell about 1.2 cents versus the euro to $1.5522 and about 1 cent versus the British pound to $1.9570, even while a key currency futures indicator turned dollar bullish for the first time in more than 2 years.

Net dollar longs by hedge funds and other currency traders/investors totaled 21,315 on April 29, 2008, according to data released by Commodity Futures Trading Commission in Washington, Bloomberg News reported Monday; there were net dollar short positions in each of the previous 123 weeks.

The dollar rallied to a six-week high Wednesday after U.S. productivity increased at a larger-than-expected rate and sentiment surfaced that Europe's economy may have slowed considerably.

The dollar rose about 2 cents versus the euro -- a large move in the currency market -- to $1.5370 on Wednesday afternoon. The dollar also gained against the world's other major currencies, rising about 2 cents to $1.9530 versus the British poundת about 0.5 cents to $1.0555 versus the Swiss franc and about one-half yen to 104.85 yen versus Japan's yen.

U.S. productivity gives dollar a lift

Earlier in the day, the U.S. Labor Department announced that U.S. worker productivity increased at a 2.2% annual pace in Q1 2008, well above the 1.7% Bloomberg News survey consensus estimate.

Independent currency trader Andrew Resnick told BloggingStocks Wednesday the Q1 2008 productivity data, combined with a sense that the European Central Bank is behind-the-curve concerning interest rate cuts to deal with slowing economic growth, put traders in dollar-buy mode.