US Dollargained against most of the traded currencies

The US dollar has become stronger against most of the traded currencies. The main reason of the dollar being strengthened is because of renewed worries about Europe’s debt woes. There is a positive effect on the US Dollar against the euro as the 17 nation currency is hit by news about Greece’s speculating 60B bailout plan and Portugal’s preparation to receive a bailout package.

According to Michael Sheldon, chief market strategist at RBC wealth management, a stronger dollar can make it difficult for US corporations to complete overseas and thereby in turn, cut into profits. The Dollar had dominated over the past six decades. However, it is time now to reconsider the dollar’s historical position. In other words, in future, the dollar may not likely be the world’s preferred currency.

Although the dollar has become a questionable investment, central banks continue to buy and hold US dollars. The main reason is because traditionally US dollar has the capacity to bear market aftershocks and it is considered as “safe harbor” during the time of uncertainty. Even if Euro would be the next option, it still carries significant risk because of the emergency bailouts for the Euro zone nations. Also, the British Pound was considered as the global currency before the Dollar. But in today’s times it is not the case. 

Euro got a brief boosting support from Q1 GDP readings from Germany and France. Euro was under pressure during the entire last week and was kept low due to the concerns over Greece’s debt restructuring. Greece is considered as part of a fixed rate regime within the euro. Hence it cannot be devalued. Hence, the credit risk factor has to be reduced and US treasury allocation has to be increased across all portfolios. It was Die Welt who said that Germany insisted on restructuring of Greece’s debt. However, spokesman Christoph Steegmans stated during the interview that the German government is not aware about the plans for restructuring the Greek debt.

Investors are focusing on short – term changes with regard to the dollar. In recent times, stocks have been moving along with commodity prices. In fact, investors are now trying to find out if the recent decline in commodities is a signal towards weak US economic growth or it is just a temporary phase. According to the report of the government which was released on Friday, the consumer prices rose at an annual rate of 32% in April. The major bulk of increases have been coming from higher prices.

In today’s times, it is not so easy to rely on a particular currency because by anointing any single currency as the reserve currency leaves the investor to be at risk by facing exchange rate fluctuations. Due to an uncertainty, the investors are trying to shift into more defensive areas of the market which also includes sector such as health care, utilities and consumer discretionary stocks. Uncertainty has creep back into the minds of the investors and so they have turn into defensive mode. Such a trend will continue in the week ahead.