Dollar Hinges on Growth and Financial Markets

The US Dollar remains to look bearish as current data indicates no let-up for the continued slide of the housing market and spiraling inflation.

The initial positive outlook of the financial market and the stabilizing prices of commodities dampen predictions that the Fed will increase interest rates.  Meanwhile, pronouncements of Fed Chairman Ben Bernanke on the financial market standing of the United States did not ease up market tensions but created more shakiness.

Directionless and Volatile

The week saw the US Dollar follow a wobbly direction as volatility of the market continues.  Traders generally shrugged off improvements in commodity prices as fears of a big bank collapse heightened and the clamor to raise rates increased.  Only spotty secondary economic indicators were docketed furthering market skepticism.

Notwithstanding these skepticisms, the US dollar strongly resisted fundamental and technical pressures as it made a slight upswing in the recent trading.  Traders are reserving their confidence in the Dollar expecting a major shift in both technical and fundamental indicators.

The general attitude of the markets will definitely impact on the coming week of trading just as it did during the past weeks.

Reevaluating the Outlook for the US Dollar

The relatively strong performance of the US Dollar against major competitors will lead to a reevaluation of its long-term market rally as hopes for a policy rate shift dimmed.  This dynamic market attitude will be especially useful for other bearish currencies.

Meanwhile, most central banks of the G10 are poised to cut back on interest rates but benchmarks would still be significantly higher than the one pegged by the US Fed.  These developments can push through even if positive forecasts for the markets prove accurate.

Too Optimistic?

Meanwhile, a 68% chance was shown by the futures market indicating that the Board of Governors will hold the 2% benchmark rate lasting until the end of the fiscal year.  Current developments in the market however point out that official forecasts could be very optimistic.

For one, prices of commodities continue to be shaky as weak domestic spending poses a threat that it might trigger another recession panic.  This was exacerbated by fears of the likelihood that another US Bank might collapse in the near future.

Topping all these fears are concerns regarding the state of the financial markets as Lehman Brothers and Freddie Mac / Fannie Mae showed dangerous signs of fading.

Waiting for the Big Data

Traders are eagerly awaiting the latest economic data releases as current developments provide sketchy pictures of market dynamics.  Specifically, the consumer and housing data could provide vital information but the revised second quarter report and the results of the August FOMC rates decision would be very significant.  

The rates decision enjoys special attention from traders as the market is increasingly calling for a positive revision of rates to 2.7 % annualized clip.  If fiscal policy makers accede to the consensus, the US Dollar could certainly gain from a short term boost.