After displaying remarkable resilience since the economy plunged into recession, analysts are now suggesting that the underlying economic fundamentals will push the dollar lower as technical factors come to an end.
The global recession cause a technical increase in demand for dollar as people looked to hold more cash and less currency and securities from emerging economies.
However, the dollar could now be facing a decline in 2009. Due to:
- Large current account deficit causing outflow of money from US. Although deficit has reduced, capital flows are drying up in global climate.
- Interest rate cuts. US interest rates are heading for 0% as the US experience consumer price deflation for second month in row.
- Large rise in public sector debt and increase in money supply to finance it.
- Loss of confidence in US economy.
