A dollar bounce for 2010?

gold barsI've just posted a FTSE-100 forecast for 2010. So what about the dollar? Weaker? Stronger? Let me just give that crystal ball a quick rub.

Right, I'm a bit more positive on the dollar than the UK FTSE. But only a smidge. Reasons for a stronger dollar in 2010? It's already terribly weak but this weakness is already priced in.

Grounds for optimism

Other reasons for optimism? The US economy expanded 3.5% in the third quarter, about double that of the Eurozone. Its US trade deficit narrowed unexpectedly to $32.9bn (or £20.2bn), 7.6% lower than September's data.

Some US assets have very attractive yields and the Fed is (slowly) being more upbeat. Oh, and the US is still the world's biggest economy.

Reasons to be cheerful

These aren't hugely cheery reasons to predict a dollar surge on their own. And there are plenty of reasons against a bounce. Unheard of low interest rates; plenty more liabilities to come; a massive budget living with a massive trade deficit.

Just think what would happen if the Chinese started dumping their dollars.

And yes, gold continues to push higher (thought it often rises in value at Christmas), undermining US dollar confidence.

Shoot the pessimist

But there's so much unbridled pessimism about the dollar. And that's one very good reason to be positive about it. I think in 2010 we could see at least a 10% climb in the greenback's value.

That's a conservative estimate, by the way. The dollar's down, but it's not out by a long way.
Read Full Story

FROM OUR PARTNERS