Possibilities of a Bounce in the US Dollar (page 2 of 2)

It will all depend on data and corporate profitability.

Unfortunately if the Euro remains at its present level, both data and corporate profitability will begin to suffer. If you recall, companies like BMW and Volkswagen suffered greatly from being under hedged when the Euro soared from 1.26 to 1.36 in a matter of two months. Meanwhile after seven straight days of gains against the Euro, the Swiss franc finally retraced ahead of tomorrow's UBS consumption indicator for the month of October. The index is expected to be firm, but the drop in retail sales growth reported last week suggests that weakness is still a possibility.

British Pound - The British pound has rallied against the US dollar for seven straight trading days to the highest level in close to two years. A solid report on house prices released by Hometrack, more talk of merger related flow and optimistic comments from UK Chancellor Brown has all contributed to pound's impressive rise.

The housing market has long been one of the strongest aspects of the UK economy and continues to fuel the country's consumer spending as well as overall economic growth. The demand by foreign corporations for UK corporations is also adding to the rise in the pound but the comments from UK Chancellor Brown was probably what took the currency over the edge. Brown said that growth will probably beat the Treasury's forecast this year and hinted that their 2006 pre-budget report on December 6th will most likely include upgrades to their GDP forecasts.

Japanese Yen - After four straight days of gains, the Japanese Yen slipped today as Bank of Japan Governor Fukui gave the market little confidence that he will match his words with action. Although he repeated his now familiar message that rates will need to be raised eventually, his credibility has gone down the tube, especially given the recent strength in the Japanese Yen which automatically tightens up the economy.

The comment from the Deputy Governor of the People's Bank of China today is a perfect reflection of how other central bankers will soon feel. He said that holders of US dollars should become increasingly worried about their positions as they face the prospects of falling long term rates and a declining US dollar. The erosion of the US dollar's value will wake many central bankers up as they weigh return on yield versus an erosion of the face value of their investments.

Commodity Currencies (CAD, AUD, NZD) - The Australian and Canadian dollars are both stronger today thanks to firmer commodity prices. There was no data released from either country which suggests that they are simply benefiting from further US dollar weakness and firmer oil and gold prices. The New Zealand dollar on the other hand is weaker despite stronger business confidence. In fact, the index hit an 18 month high which is quite surprising given the strength of the currency and weakening of the economy.