The Future of the Dollar

The smart money is betting, once again, that the days of the almighty dollar are numbered. And just because this prediction was startlingly wrong for 2005 doesn’t mean it’s wrong again for 2006.

After a yearlong bull run fed by rising U.S. interest rates, political disarray in the euro zone and sustained dollar buying by Asian central banks, the dollar is running out of fuel, say economists and investors. The latest warning shot came when the European Central Bank, led by president Jean-Claude Trichet, earlier this month raised its basic interest rate for the first time in 30 months, a move that could attract investors to the euro. After the first quarter of 2006 “things get dicier” for the dollar, says Anton Pil, global head of fixed income for JP Morgan Private Bank. “You’ll start seeing the unwinding of dollar positions back into euros and yen… and then the debt cloud will re-enter the picture.”
Newsweek