The dollar index rebounded sharply off of its eight-month low in early June but that rally could be fleeting.
Andrew Wilkinson, senior analyst for Interactive Brokers, says that the sea change of expectations on short-term interest rates and potential change in the Fed’s policy at the beginning of June had a short-lived affect of support in the dollar. “[That’s] pretty quickly dissipated. The Eurozone is in a far weaker state than the U.S. economy. The number of job losses across the U.S. was far lighter than anybody expected, so people start to cast aspersions on the European recovery,” He says. “The tide reversed pretty quickly and people have realized that the Fed never raised rates when unemployment has been rising.”
Dan Cook, senior analyst for IG Markets, says the shallow dollar recovery was based on the risk aversion coming out of the market. “Some big firms are going to say ‘the recovery is here,’ but I disagree with that,” he says. Cook expects the dollar to regain some of the strength in the last week of June into early July, and says the euro could see the mid-130s at that point.
“The Treasuries have been battered and I look for that to shift a bit as well. We’ll see some strength come back into the dollar. We’ve had a nice run, but it’s played out,” Cook says.