Brighter prospects for the US economy boost the dollar


One would think that with more than $12.8 trillion in monetary and fiscal stimulus added to the American economic system, the dollar would be under considerable pressure.

Well, it's not that simple. The dollar did weaken to $1.4330 versus the euro at the start of the month, but has since strengthened to $1.3935 and is basically unchanged for the year. The reason? Institutional investors are not willing to part with the buck -- at least not to the extent some analysts believe they should.

Most recently, rising interest rates in the United States have lured investors to the greenback. "The simple way to look at it is from a perspective of interest rate differentials moving in favor of the dollar," Benedikt Germanier, a currency strategist with UBS AG (UBS) in Connecticut, told Bloomberg News. For example, the yield advantage of German two-year bonds versus a comparable U.S. note fell to 0.26 percentage point, its narrowest since March.

Originally published