The US dollar is back in action. After falling from its recent high of 88.40 points hit in June 2010 to the low of 75.88 in early November, the dollar index - which tracks USDs progress against a basket of six leading currencies - has risen sharply in a span of few weeks. (See graph)
The dollar index was hovering around the 80 point mark - eyeing 82 in the immediate term. "The index is likely to hit 82.5 in the next two and three weeks - following that, it could undergo a minor correction," says Qasim Anwar a technical analyst at AKD Securities, adding that the index will eventually resume its upward trend, sighting 91 points likely between June-August 2011.
A rising dollar means that a part of the benefit stemming from the US Feds second round of quantitative easing will be diluted.
Earlier this month, when the US Fed said it would pump some $600 billion, in the market in a move which is being termed as QE2, global leaders, including those from Germany and China, openly protested, as they felt that QE2 would make the dollar cheaper and thereby rendering the situation unfair for Americas trade partners.
But soon after that, the eurozone unveiled a squeal to the EU debt crisis - starring the Irish and the Portuguese this time around - that sent the euro spiralling downwards against the USD. The euro weakened by around 1 percent against the USD on Friday, its lowest since late September.
And now the latest stimulant working in favour of the USD is North Koreas shelling of South Korea; analysts assert that if there is a war amongst the Koreas, the yen would fall off aggressively against the dollar - which means that the dollar basket would strengthen even more.
All this took place in the backdrop of stronger-than-expected October US retail sales and higher-than-expected monthly non-farm payrolls data, which showed that 151,000 new jobs had been created last month, far outstripping expectations of 60,000 jobs.
US GDP data also showed stronger readings; Americas gross domestic product rose at a 2.5 percent annual rate in the three months ending September, above the 2 percent estimated earlier.
A confluence of these developments seemed to have offset sombre economic forecast by the US Fed that said last week that joblessness looks set to remain higher for a period longer than previously expected.
The Feds latest forecasts suggest that more than 10 million Americans would likely remain unemployed through the 2012 elections - even though separate reports suggested that US corporate profits were recovering sharply.
As to where the USD would eventually head to, one can never be too sure, given the way the forex markets work. But rest assured - a rising dollar index amid monetary tightening in China means that global commodity prices will taper off further more, which just polishes that silver lining in the sky for Pakistan.
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