In the past, the U.S. dollar largely was considered a safe haven currency alongside the yen and franc, but Andrew Wilkinson, senior market analyst at Interactive Brokers, says that is not necessarily the case anymore. "You can come in any given morning and flip a coin whether the dollar is a safe haven or not," he says.
Wilkinson goes on to say that the dollar still is viewed as a mostly safe bet, especially when the alternative is the euro. "People have referred to the currency market as an ‘ugly contest’ and the dollar just is being deemed ‘less ugly,’" he says.
Brian Dolan, chief currency strategist at Forex.com, points to a slew of poor economic numbers concerning the U.S. economy when discussing the U.S. dollar. "The dollar has its own set of problems, not the least of which being a stalling recovery. ISM was terrible in July, consumer spending dropped for the first time in two years, the unemployment situation shows no signs of significant improvement and housing remains in the tank. The Fed is going to stay on hold and, although I dismissed it earlier, [a third round of quantitative (QE3)] looks like a real possibility," he says (see "How about a dip?").
In the medium-term, Dolan put the U.S. Dollar Index in a range of 73.50 to 80 and expects a year-end number around 78.
Dean Popplewell, currency analyst at Oanada, agrees that QE3 is looking like an increasingly real possibility. "Without the labor department improving, the Fed may have to get QE3 off the shelf and start considering implementation," he says. July nonfarm payroll grew by 117,000. That was an increase over June and better than expected.
He says that the budget restrictions passed in the debt ceiling compromise will limit growth from government spending. "The budget reduction means the government will not be spending, which is counter-active to QE3 or stimulative measures that had been implemented over the last year or so," Popplewell says.
He says that should the Fed implement QE3, the dollar should weaken and is likely to remain on the course we’ve seen so far this year.