U.S Dollar Outlook

(Monday, July 06, 2009) Uncertainty about the strength of the world economy and concern about the U.S. fiscal deficit will probably confine the dollar to a narrow trading range over a week ahead as markets ease into the typically quiet summer doldrums.

Dollar Likely Range-bound Despite Potential Loss Its Momentum

Until now, the dollar has held up fairly well despite a swelling deficit, an onslaught of government debt issuance and repeated calls to end its status as global reserve currency. That's partly because recent economic data has tempered the optimism that had prompted investors to pull out of safe-haven U.S. assets in favor of commodities, stocks and higher-yielding currencies. Data on last Thursday showed U.S. employers cut 467,000 jobs in June, far more than economists were expecting after May's surprisingly low tally of 322,000 job losses.

"The market is still favoring foreign currencies over the dollar," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. "Sentiment still says to sell the dollar whenever possible." There are scarcely any incentives to buy dollars, yen or euros, which the economic outlook for Japan and the euro zone also remain far from stellar. That should leave the dollar range-bound against the yen, while the euro is likely to continue to hover in the $1.37-$1.43 area.