Dollar Advance Torn Between Stalled Risk Trends, Hawkish Fed
Posted 02-18-2010 at 10:35 AM by DailyFX
Risk trends defined the dollar’s rally; and they can likely bring it to a close. Over the past week, the greenback’s status as a primary safe haven and funding currency was still in control; but the underlying currents of sentiment had shifted.
Be sure to join DailyFX Analysts in discussing their outlook for the Fed and its impact on the dollar in the DailyFX Forex Forum
The Economy and the Credit Market
Risk trends defined the dollar’s rally; and they can likely bring it to a close. Over the past week, the greenback’s status as a primary safe haven and funding currency was still in control; but the underlying currents of sentiment had shifted. Despite a notable lack of progress from the European Union on the matter of a potential Greek default, the effort to unwind risky positions stalled this week and kept the greenback from overtaking a well-tested seven-month high. The market’s attention is highly fluid; and this could very well be a sign that global investors are moved on to different concerns of return or risk. However, considering the trend for the past month has been a steady decline in risk trends and a steady advance for the dollar over the past two months, it is more likely the case that this is merely a pause before additional concerns bubble to the surface. In the meantime, the US currency itself is finding greater and greater appeal on a purely fundamental basis. With the Euro Zone struggling with a potential structural crisis, the viability of diversifying reserve funds away from the US seems less straightforward. Furthermore, with China having to take active steps to cool its booming economy (to avoid a potential asset bubble) and dimming the global outlook along with it, the United State’s steady recovery looks far more stable and attractive. To top it off, interest rate speculation is starting to find a real foothold. According to the recently released FOMC minutes, the argument for beginning asset sales in the “near future” joins Member Hoenig’s vote to drop the language that rates will be held “exceptionally low” for “an extended period.”
Read more...
Be sure to join DailyFX Analysts in discussing their outlook for the Fed and its impact on the dollar in the DailyFX Forex Forum
The Economy and the Credit Market
Risk trends defined the dollar’s rally; and they can likely bring it to a close. Over the past week, the greenback’s status as a primary safe haven and funding currency was still in control; but the underlying currents of sentiment had shifted. Despite a notable lack of progress from the European Union on the matter of a potential Greek default, the effort to unwind risky positions stalled this week and kept the greenback from overtaking a well-tested seven-month high. The market’s attention is highly fluid; and this could very well be a sign that global investors are moved on to different concerns of return or risk. However, considering the trend for the past month has been a steady decline in risk trends and a steady advance for the dollar over the past two months, it is more likely the case that this is merely a pause before additional concerns bubble to the surface. In the meantime, the US currency itself is finding greater and greater appeal on a purely fundamental basis. With the Euro Zone struggling with a potential structural crisis, the viability of diversifying reserve funds away from the US seems less straightforward. Furthermore, with China having to take active steps to cool its booming economy (to avoid a potential asset bubble) and dimming the global outlook along with it, the United State’s steady recovery looks far more stable and attractive. To top it off, interest rate speculation is starting to find a real foothold. According to the recently released FOMC minutes, the argument for beginning asset sales in the “near future” joins Member Hoenig’s vote to drop the language that rates will be held “exceptionally low” for “an extended period.”
Read more...
Total Comments 0
Comments
Total Trackbacks 0
