Going Global: Dollar's Rally Could Be Short-Lived; Many Expect U.S. Currency To Resume Its Decline After Coming G-7 Meeting
Paris -- TO PARAPHRASE the title of the Jack Nicholson movie: Is this as good as it gets?</br></br>To many, it looked that way for the dollar late last month, when the U.S. currency staged a brief comeback after its long and steep decline against the world's other currencies, especially the euro. The dollar at one point climbed to $1.2338 to the euro from an all-time low of $1.2897, set earlier in January.</br></br>Many sages said the time was just ripe for a brief dollar recovery and that the dollar's downward creep would continue soon afterward. The dollar's brief boost, they say, was simply caused by European officials jawboning in its favor, the Federal Reserve hinting that U.S. interest rates could be headed higher and finance officials from the Group of Seven industrialized nations preparing for their meeting this weekend.</br></br>Indeed, that consensus appeared to be right when the dollar's decline started again a little less than two weeks ago. In late New York trading yesterday, the euro was changing hands at $1.2545, less than 3% below its record high. After all, "nothing much has changed in underlying fundamentals," says Carl Weinberg, chief economist at consulting firm High Frequency Economics in Valhalla, N.Y.</br></br>Is that consensus too pessimistic about the dollar's prospects? While many certainly back the dollar-will-weaken view, there are some good arguments worth airing as to why the dollar's selloff may have gone too far, meaning the U.S. currency could actually strengthen against the euro this year.