Dollar on the back foot…again.

The dollar has seen some spectacular swings of late, safe haven buying drove the dollar to 15+ year highs against some of the major currencies earlier this year. Now we see it back at October 2008 heights (or lows!).

The latest trigger for dollar selling has been the negative outlook placed on the UK by Standard and Poor’s, the thinking being that the UK couldn’t possibly be alone in this burden of debt; surely the US will be placed on the same negative watch. By the time you read this you may be able to answer that one, but a lot of the damage has been done.

Chart points have been breached, limit orders filled, profits taken and some wounds licked. What will spark another dollar rally – safehaven buying did get a bit overdone earlier in the year and dollar bulls have been flushed out of the market.

Don’t count the dollar out yet, it was arguably the first major country into this mess and has been one of the most aggressive in trying to stop the tide. Time will tell if Bernanke will be named Moses or Canute. The US is one of the world’s major consumers, demand and spending will return with jobs, housing is just another one of the consumer products. Follow the jobless numbers to see the real direction of the economy. Weekly US unemployment numbers have seen 14 consecutive weeks of 600k+ jobs lost, not exactly any green shoots to be seen there then!

Corporations may start to make money, but, until it translates into spending, growth and future planning for expansion, they are going to be quietly holding on to their profits. The green shoots are going to be few and far between (a bit like my garden at the moment). On the positive side I don’t know anyone who doesn’t want to believe that things are getting better; that may be more important than actual numbers. If you have a positive spin on bad numbers you can usually generate the outcome you are looking for, if you have an entire population pulling the same way it may not take much watering to get that green lawn again.

There’s money to be made out there, it really doesn’t need much effort, buy or sell, the trend is your friend. You do however need some very steely nerves and a couple of large testimonials. I wouldn’t be surprised to see some of the FX funds (the real ones not the ‘guaranteed’ returns ones) and Banks making some very large returns this year…as long as their position limits haven’t been cut too much. Without risk there is no reward.


Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of
this information.




Butterfield Bank’s Phil Turnbull