Bounce-Back for the Greenback? City Index Analyses the Future of the Dollar

LONDON, July 15, 2011 /PRNewswire/ --

The dollar hit 16-month lows against the euro and pound in April. The currency known as 'the greenback' also fell to all-time lows against the franc and yen. However, as bail-out discussions for Greece and Portugal continue, traders attentions are turning to the dollar once again. Neil Looker, Chief FX Dealerof City Index (http://www.cityindex.co.uk/), looks at why the greenback has risen in popularity - and how long the rebound is set to last.

"There were a number of reasons why the greenback had seen a big decline to new 16 month lows in April. Commodity prices soared on strong demand seeing Gold top $1500 for the first time, whilst traders largely ignored European debt woes to focus on expected interest rate hikes from European central bankers as a means to combat price pressures."

Mr. Looker continues: "However, the picture appears to have changed quite sharply in the last month or so and now the greenback could well be back in play after a 16 month absence.

"All of sudden the market seems to be in a risk averse environment with commodity prices turning extremely volatile, including a 30% fall in the price of silver in just one week. This volatility in commodities triggered a natural safe haven flow into the dollar as the market ran for cover.

Despite the rise in popularity around the dollar, FX trading and spread betting expert Mr. Looker is keen to point out this may only be a short term increase due to traders' uncertainty about how the European debt crisis will play out. "This is particularly pertinent as Greece steps closer to a potential default and the EU and IMF are no closer to reaching an agreement to buy Greece time to meet their debt obligations."

"Should debt woes continue and rate hikes be put on hold from the ECB, there is every chance that the Euro/Dollar pair could fall to $1.30," states Neil Looker in summary. "Sterling could also face continued weakness should the Bank of England indicate rate hikes are unlikely to come until next year and debt woes continue to force investors into the greenback currency. Should momentum gather to the downside, a break below the $1.60 level could open up a move to the $1.53 level in the Sterling/Dollar cross pair."

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SOURCE City Index