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Dollar Set for Short-Term Gain, but Long-Term Pain as Inflation Bets Normalize

ForexApr 09, 2021 03:27PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The dollar looks set to snap a three-week win streak Friday, and while analysts are expecting short-term gains to resume, the longer-term outlook for the greenback is less convincing.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.10% to 92.17.

"In the coming weeks, the dollar is more likely to gain on account of the strong recovery of the US economy. However, it is likely to weaken again versus the euro in the second half of the year," Commerzbank (DE:CBKG) said.

The gloomy outlook on the dollar comes as investors are reining in their bets on inflation spiraling out of control and the Fed acting sooner-than-expected.

The injection of further monetary policy from President Joe Biden's infrastructure plan could prove as another potential source of weakness for the greenback.

Further stimulus would "not be the magic formula with which to boost the US economy … rather, it would only trigger a short- to medium-term artificial boom, which is too obviously finite for the FX market to be seduced by it in the long term," Commerzbank added.

In the short-term, however, there is room for the dollar to ride on the coattails of Treasury yields.

"Our rates team is expecting UST yields to be back on the rise next week: in FX, this may imply that the dollar can recover some ground to low-yielders," ING said in a note.

Dollar Set for Short-Term Gain, but Long-Term Pain as Inflation Bets Normalize
 

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Comments (2)
Kesha Fermin
Kesha Fermin Apr 18, 2021 8:47PM ET
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𝚝𝚑𝚒𝚜 𝚒𝚜 𝚝𝚑𝚎 𝚏𝚊𝚜𝚝𝚎𝚜𝚝 𝚠𝚊𝚢 𝚝𝚘 $ 10,000 𝚙𝚛𝚘𝚏𝚒𝚝. 𝚐𝚞𝚊𝚛𝚊𝚗𝚝𝚎𝚎𝚍. 𝘂𝗷𝗲𝗷𝘀𝗰𝗮.𝗺𝗹
Roberta Garrett
Roberta Garrett Apr 09, 2021 5:20PM ET
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Once the dollar starts to reverse, where do you see it going? Low to mid 80's? Or staying in low 90's? And does the reverse have to happen before industrial & precious metals start to rebound? Seems that many are flocking to the dollar to hold onto their money.
 
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