Low U.S. Rates Keep Dollar on the Defensive
Author: Javier E. David</br></br>NEW YORK--The Federal Reserve's bias for loose monetary policy is likely to keep the dollar trapped in a downdraft this week, just as hawkishness on inflation and looming interest-rate increases in Europe enhance the euro's luster.</br></br>Low U.S. interest rates and the possibility of an oil-driven jump in inflation have deprived the dollar of safe-haven investment flows that usually benefit the currency during times of global unrest. Risk-aversion will likely continue to benefit the Swiss franc and Japanese yen, for now.</br></br>Investors are searching for currencies that offer both stability and higher yields, which makes the euro a comparatively attractive bet.</br></br>Meanwhile, the dollar is on the defensive because of the Fed's controversial bond-purchase program, known as quantitative easing or QE2, which is keeping yields low on dollar-denominated assets.