Dollar Gains on Positive Fed Assessment

According to many experts the US dollar is likely to extend its recent gains into next week. The dollar has been supported by evidence of a stable recovery in the US and the Fed’s willingness to withdraw emergency measures in February 2010. Despite the Feds announcement that rates would remain at record lows both factors are contributing to speculation that the Fed may raise rates earlier than expected. Nick of Wells Fargo stated, “We see the U.S. economy continuing to recover and monetary policy settings starting to move back to normal. Although our economics team does not expect actual rate tightening to take place until late in 2010, the withdrawal of non-conventional measures could start tipping the scales in the dollar’s favor.” Assets such as stocks, commodities and emerging currencies that have gained over the course of the year have led to year end profit taking benefiting the dollar.

Ongoing Greek Concerns Pressure Euro

The ICE futures’ dollar index .DXY which measures the dollar vs. a basket of six major currencies has gained since early December but is still down 4.3% for the year. The DXY has fallen 13% since March 2009. For the week the DXY is up 1.9% the best weekly performance since April. The euro was down 2.4% against the dollar this week and on Friday the euro fell to $1.4269 the lowest since September. The euro has been pressured by the Greek downgrade by Standard and Poor’s and Austrian banking concerns. Todd Elmer of CitiFX  stated, “The euro is feeling the ill-effects of ongoing strains in Greece and we doubt that this euro-negative factor will soon abate.”

Upcoming US Data

This week will bring a slew of economic data from the US. The final estimate for third quarter gross domestic product will be released along with housing data, reports on personal income and spending, and durable goods orders. Most economists expect the figures to support the view that the US is on the road to recovery. All this is expected to be dollar positive.