Inflection Point for Dollar as Risk Haven?

From The Financial Times:

Speculation grows over dollar's turning pointBy Peter Garnham
Financial Times
Published: August 11 2009 19:31 | Last updated: August 11 2009 19:31

Just a week after the dollar hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen.

The change of sentiment has been sparked by last week's US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan.

"Markets are in a flurry of debate about whether Friday's US payrolls data marks an inflection point for FX, whereby good US economic news starts to benefit rather than hurt the dollar," says Ray Farris at Credit Suisse.

Hans Redeker at BNP Paribas says there are signs that the US economy has responded positively to the massive US fiscal and monetary stimulus, thus reducing the risk premium for holding US assets.

"The introduction of quantitative easing in March has let the performance of the dollar diverge from the guidance of real interest rate differentials," he says.

"Now, as the economic outlook has stabilised, the relative yield and interest rate differentials should regain their impact on currency markets."

Others are hesitant to call an end to the trend of dollar weakness, given that the currency's rebound has been based on its reaction to a single piece of economic data.

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