Wednesday, August 12, 2009

Dollar Adds to Gains As Investors Mull U.S. Jobs Data


"This past Friday may have been a turning point in that relationship and we need to be alert to more traditional fundamental factors coming back to drive foreign exchange," said Brian Dolan, chief currency strategist at Forex. "A brightening U.S. outlook may increasingly begin to support the dollar."

The dollar index, a measure of the greenback against a trade-weighted basket of currencies, rose to 79.365 from 78.940 in late North American trading on Friday.

The euro traded at $1.4135 versus the dollar, down from $1.4179 Friday.

Since the credit crisis reached its peak, the dollar has tended to lose ground on favorable economic news and rallying equity markets, while rising on bouts of safe-haven buying on negative news and falling equities.

The U.S. currency rose on Friday along with equities, indicating a correlation directly to the economic outlook may be reasserting itself. More typically, the dollar rises along with positive economic news -- and the potential for rising interest rates, boosting yields on the country's bonds -- as those qualities make a nation's currency more attractive compared to other countries where the growth outlook and interest rates may not be as appealing to investors.

In that regard, the U.S. looks more likely to emerge from the recession before both Europe and Japan, making the dollar more attractive than the euro and yen.

"If currencies were to trade on cyclical differences from here on, the U.S. dollar would be set for clear outperformance," said currency strategists at Citigroup. The firm expects the U.S. economy to grow 2.1% in 2010, which the euro-zone grows just 0.5%.

All markets are also on edge before the Federal Reserve's monetary policy meeting on Tuesday and Wednesday. Analysts expect little change to officials' statement about leaving interest rates unchanged for an extended time. See story on Fed rate policy.

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