Any Dollar Rebound Will Be Temporal – for Now

EUR/USD 1.3814

GBP/USD 1.5707

GBP/EUR 1.1427 (0.8751)

The euro slid to a two-week low at $1.3697 yesterday, but it gained back to $1.3814 this morning. The dollar fell due to speculations that the Federal Reserve officials will signal further credit-easing measures to support economic growth – possibly $100 billion a month in bond buys.

The U.S. dollar index, which tracks the greenback versus six other currencies, released its biggest daily gain since August on Tuesday. Analysts, however, said the market overreacted as the Federal Reserve was set to ease monetary policy further as early as next month. Thus, any dollar rebound will be short-lived.

“The quantitative-easing story is clearly entrenched in the market,” said Jonathan Cavenagh, currency strategist at Westpac Banking Corp. in Sydney. “Positioning is still fairly stretched on the downside for the U.S. dollar.”

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