USD Fundamental Analysis-17 July 2009

By: William Doody
Another positive move by global equities undermined the U.S. Dollar again on Thursday as currency traders exchanged their safe-haven positions for riskier bets. The Dollar posted losses against both the Euro and the British Pound, as well as against the major commodity currencies. Despite its rise on Thursday, we continue to be pessimistic concerning the prospects for the British Pound. The pace of economic recovery in the U.K. appears to be the weakest of the major economies and there are a number of regulatory and reform uncertainties still facing policymakers. There is no guarantee that additional government funds will not be needed in the banking sector and the future course of monetary policy remains somewhat uncertain. Meanwhile, economic data in the U.S. shows signs of stabilization, if perhaps not recovery, and early 2Q earnings reports have been encouraging. Based on the divergence in likelihood of short-term recovery, we would buy the U.S. Dollar versus the British Pound.