Friday, March 21, 2008

Dollar likely to see further bounce next week

The U.S. dollar is likely to gain more ground next week as investors further unwind positions in commodities after pulling oil and gold prices off recent record highs as they reduced risky positions built on borrowed money.

On Thursday, gold posted its largest weekly loss in 25 years, while oil and base metal prices extended falls on fears of a decline in global demand if the United States slips into recession.

With the drop in commodities, the dollar rose from historic lows against the euro and Swiss franc, gaining 3.0 percent since the single European currency hit record highs at $1.5904 on Monday. Against the Swiss franc, the dollar has risen 5 percent since falling to lifetime peaks around 0.9637 francs .

For now, analysts say it's not clear whether the current correction in commodities was just profit-taking or enforced liquidation by hedge funds on higher margin calls. Nevertheless, they believe the sell-off has further to run, which could spark a rally in the dollar index above 73.00 .DXY.

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