Dollar weakness is a long term story
Wed, Mar 25 2009, 12:30 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
A question that will be in the forefront of traders' minds over the coming weeks will be; has the dollar bear trend started? Both inflation and a weak dollar are expected to be developing themes, but whether we are at the start of the trend looks open to debate. Whilst I do expect commodities to trend higher, yields to rise and the dollar to sell off, the most important issue here is timing. This means that either your investment outlook has to be very long term (over three years) or short term orientated (one to two weeks- although even this feels like a long time). Hence for the moment the weak dollar trend should continue, but there is still scope for dollar buying to return in the medium term to upset this trend, before the 'grand sell off' begins. In the here and now, equities have rebounded from their oversold condition, much as expected, and this has promoted a wave of dollar selling. As mentioned previously, sterling will benefit from this scenario as it is 'ultra cyclical' and the sharp bounce against both the yen and euro look set to continue. Notably, euro dollar has resisted another upside break-out attempt and bond yields haven't reacted like a market looking for an excuse to sell, both of which suggest some caution in this trend.
