Dollar May Be Ready For A Turn Around

From The Wall Street Journal:

“If economies outside the U.S. slow, the U.S. may no longer seem like such a bad place for foreign investors to put their money, especially given how much further a euro or yen will go in the U.S. than they do at home. That could restrain the dollar's fall. More immediately, troubled U.S. financial firms may need to sell foreign-currency-denominated assets to shore up their balance sheets before they close their books at year end. Repatriating that money will mean buying dollars, and that could boost the currency.

Meantime, hedge funds and other speculative investors have placed heavy bets on the dollar continuing to lose ground against other currencies. If the dollar starts to rise, they will be forced to unwind those bets, and the dollar's rebound could be fierce.”

From International Herald Tribune:

“The U.S. budget and trade deficits are narrowing in tandem for the first time since 1995, when the dollar gained 8 percent as measured by the Federal Reserve's U.S. trade weighted dollar index. The economy will expand 2.4 percent in 2008, compared with 1.9 percent for Europe, according to surveys conducted last month by Bloomberg News.

‘I am confident that the dollar will have a significant rally next year, especially against the euro and the pound,’ said Stephen Jen in London, the head of currency research at Morgan Stanley. Jen said that he expected the U.S. currency to strengthen to $1.35 against the euro by December 2008 from $1.4633 last week. ‘The deficits are shrinking fast.’”

From Bloomberg:

“The median forecast of strategists is for a 5 percent gain to $1.40 against the euro in 2008. Redtower Ltd. in Aberdeen, Scotland, is the most bullish, calling for the dollar to gain to $1.23 by the end of next year.

Jim O'Neill, chief economist in London at Goldman Sachs Group Inc., the most profitable securities company, said last week the narrowing trade deficit will help revive the dollar's allure. Goldman had predicted that the dollar would weaken as U.S. growth slowed while the rest of the world expanded.”