US Dollar May Strengthen Further in 2010

In December, the US Dollar appreciated significantly against the Euro. And although the greenback has started losing its position in January of 2010, we still believe in its long term recovery.
Anna Fedec, 1/20/2010 1:51:29 PM

Indeed, investor’s sentiment towards the dollar improved remarkably in December. In particular, after the US Federal Reserve Meeting signaled an exit strategy from quantitative easing. In fact, in the recent past, investors were taking loans in US dollars and then exchanging the greenback for other high yielding currencies like Brazilian Real or Australian Dollar. However, Fed actions in December brought the possibility of interest rates hikes within the next few quarters, thus making investors more optimistic about gains in US dollar holdings.

In addition, fluctuations in EURUSD exchange rate have a lot to do with growth expectations in the US and Euro Area. And while December brought more positive data for US than for Euro Zone, the first two weeks of January were quite disappointing for the largest economy in the world. For example, data released in January revealed that in December Americans were still losing jobs and retail sales went down in spite of a holiday season. Yet, this week the US dollar gained again against the euro after the ZEW Center for European Economic Research said its index of investor and analyst expectations in Germany dropped for fourth consecutive month in December. Adding to that, fresh concerns about Greece, Spain and Ireland’s fiscal instability may push the euro to fresh new lows.