Dollar Inches Higher But May Soon Fall Back

The U.S. dollar ticked higher Monday after suffering some losses late last week, but several analysts forecast a move lower for the greenback in the days ahead.

Monday afternoon in East Asia saw the ICE dollar index  , which measures the U.S. currency against a basket of six major rivals, inching up to 79.679 , compared to 79.649 late Friday in North America.

The WSJ Dollar Index  , an alternative measure of the U.S. unit, ticked to 72.08, up from Friday’s 72.03. Both indexes saw little movement Friday after chalking up losses Thursday.

Despite Monday’s modest gains, Royal Bank of Canada senior currency strategist Sue Trinh noted that the dollar remained not far from its lowest levels of the year, with the market pricing in a delayed start to the Federal Reserve’s plan to slow the pace of its stimulus.

Such a delay to the Fed’s so-called “taper” was based on the central bank’s likely concern over another battle in the Congress that could again shut down government operations or threaten a U.S. default.

“Our U.S. strategists’ base case is a March 2014 start to tapering, but a Feb. 7 debt ceiling suggests the risk is that tapering could be pushed out into the second quarter,” Trinh wrote Monday, referring to the February date at which the current U.S. borrowing authority granted by Congress runs out.

Crédit Agricole strategists agreed, saying they “expect a shift in consensus surrounding [the Federal Reserve’s] tapering commencement from the Dec. 18 … meeting until January (or possibly later) to undermine the U.S. dollar next week.”

They said the projected weakness for the dollar would be to the benefit of the euro, which could also gain as investors use the U.S. unit as a carry currency, borrowing in dollars to lend or invest in euros.

As a result, they said in a note Monday, the European currency “could comfortably trade above $1.38 in coming weeks.”

The euro  was little changed Monday, buying $1.3675, down nominally from late Friday’s $1.3680. The British pound  also moved sideways to $1.6165, against $1.6168 at the end of the previous week.

Among the top Asian currency pairs, the dollar rose against the Japanese yen  to buy ¥98.01, up from ¥97.84 Friday, while the Australian dollar  held at 96.69 U.S. cents, little moved from 96.67 U.S. cents.

Source : Marketwatch