As Europe’s debt crisis continues to spiral towards oblivion, top currency traders are now saying that the US dollar, which has tanked some 12% versus the euro in the last year, will fall no further in 2011. Bloomberg reports, “Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.”
The Euro Zone debt crisis is undoubtedly contributing to a return of institutional confidence in the dollar. With Moody’s (NYSE:MCO) adding to the panic last week in cutting its ratings on Portugal to junk, the dollar is gaining more weight as a safe bet for currency traders, even in spite of ongoing trouble in domestic debt ceiling negotiations. The dollar is up 5.7% from May, when it hit a 17-month low v. the Euro.
Hedge funds too are ebbing their bets against the dollar, with Bloomberg noting, “Wagers on a decline against peers including the euro, yen and pound were 203,230 on July 5, data from the Commodity Futures Trading Commission in Washington showed last week. That’s down from 405,267 in March, the most since at least November 2003.”
Its not just the euro that looks less appealing these days, as analysts report that the yen too may soon see a sell-off v. the dollar. Inflationary pressure continues to mount in China (NYSE:FXI) and more investors are likely to move back towards the dollar, say analysts. A Wells Fargo (NYSE:WFC) currency strategist adds, “The safest bet is to stay long the dollar against the yen. As soon as the market starts to see a shift in interest-rate futures, that would be enough for the dollar to move higher. We expect this to happen by the end of the fourth quarter.”
Other factors contributing to the dollar’s rebound are thought to be the recovering economy, robust growth in corporate earnings, and the end of the Fed’s QE campaign.