Dollar Headed For First Annual Gain in 10 Years

The US dollar is now headed for its first annual gain against the yen in years. US economic data due next week is widely expected to show that the US economy is recovering prompting speculation that the Federal Reserve may raise rates early in 2010. The data is expected to show that US manufacturing grew for the fifth straight month and minimal job losses. When the Fed will raise rates and withdraw emergency measures has been a key question for currency traders. The dollar is also on track for its first monthly gain on the euro since June 2009. The Japanese yen is at a three week low against the euro and the Bank of Japan is expected to expand credit easing measures. Robert Rennie of Westpac Banking Corp. in Sydney stated, “A combination of higher U.S. yields and further signs of improvement in the labor situation in the U.S. should continue to underpin the dollar. Here is a stronger sense that 2009 was not as kind to the Japanese economy as it was to other parts of Asia. We are set to see more policy options being discussed within the BOJ.”

Some Say Dollar Gains Not Sustainable

Dollar gains were limited by speculation that the recent dollar rally was overdone and not sustainable. Some credit dollar gains to year end profit taking. Darius Kowalczyk of SJS Markets Ltd. in Hong Kong told Bloomberg television, “The dollar has been bought back in December on profit- taking by people who had been selling it earlier this year. This kind of year-end profit-taking is only temporary.”

Pound at 10 Day High vs. Dollar

The pound rose to a ten day high against the dollar as year end position shifting led to a dollar sell off. The pound declined against the euro which benefited from widespread dollar selling. Currency experts say that trading is so thin that a few orders can trigger a big currency movement.

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