Dollar Falls on Corrective Speculations

After gaining more than 5 percent this month versus the euro the greenback declined as investors speculate that current gains for the U.S. currency may have been excessive, forcing the dollar down versus higher-yielding currencies as well.

After today’s decline the dollar is still posting an advance of more than 4 percent versus the European single currency this month, as future contracts suggest a good performance in 2010 for the dollar, since the economic recovery expected in the U.S. is likely to be the main driver behind a strong dollar. Other high-yielding currencies that declined versus the greenback this month from the highest level in 2009 four weeks ago, like the Australian dollar, also pared some of December losses today on speculations this rally could be overdone.

The dollar is likely to remain bullish in 2010 even if speculations question the fundamental factors backing its strength. Commodity producers’ currencies like the South African rand and the Brazilian real may not be as affected as the euro while the dollar advances, since the economic recovery in the U.S. may increase demand for commodities, favoring these countries’ currencies.

EUR/USD traded at 1.4406 as of 12:53 GMT from a previous rate of 1.4345 in the intraday comparison. AUD/USD traded at 0.9001 from 0.8945 yesterday.

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