The dollar hit 16-month lows against the euro and pound in April. The dollar also fell to all-time lows against the franc and yen.
However, as bail-out discussions for Greece and Portugal continue, traders’ attentions are turning to the dollar once again.
Neil Looker, Chief FX Dealer at City Index, looks at why the greenback has risen in popularity - and how long the rebound is set to last.
"There were a number of reasons why the greenback had seen a big decline to new 16 month lows in April. Commodity prices soared on strong demand seeing Gold top $1500 for the first time, whilst traders largely ignored European debt woes to focus on expected interest rate hikes from European central bankers as a means to combat price pressures."
FX Spread Betting - Safe Haven Flows into the Dollar
Mr. Looker continues: "However, the picture appears to have changed quite sharply in the last month or so and now the greenback could well be back in play after a 16 month absence.
"All of sudden the FX spread betting market seems to be in a risk averse environment with commodity prices turning extremely volatile, including a 30% fall in the price of silver in just one week. This volatility in commodities triggered a natural safe haven flow into the dollar as the market ran for cover.
FX Spread Betting - The European Debt Crisis
Despite the rise in popularity around the dollar, FX trading and spread betting expert Mr. Looker is keen to point out this may only be a short term increase due to traders' uncertainty about how the European debt crisis will play out.
"This is particularly pertinent as Greece steps closer to a potential default and the EU and IMF are no closer to reaching an agreement to buy Greece time to meet their debt obligations."
"Should debt woes continue and rate hikes be put on hold from the ECB, there is every chance that the EUR/USD spread betting could fall to $1.30," states Neil Looker.
"Sterling could also face continued weakness should the Bank of England indicate rate hikes are unlikely to come until next year and debt woes continue to force investors into the greenback currency. Should momentum gather to the downside, a break below the $1.60 level could open up a move to the $1.53 level in the GBP/USD spread betting market."
Spread betting and CFD trading carry a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.
Content approved / provided by City Index Limited which is a company registered in England and Wales, number: 1761813. Authorised and Regulated by the Financial Services Authority. FSA Register Number: 113942.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'FX Spread Betting: Can the Dollar Rally Continue?', Review by D. Jones, last update: 14-Oct-11
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