Dollar Rally – Short term or Long term?

Dollar has seen an unprecedented rally Vs Euro and Yen during the last week.

During this week also the strength of Greenspan continued unabated till the outcome of Fed meeting on Tuesday.

On Tuesday the benchmark federal funds rates were kept steady at 2.00 %. Statement of Fed signaled that there is no hurry to move the borrowing costs higher.

After the Fed meeting, it seemed that the Dollar rally may fizzle out. It looked like Euro was trying to recover the lost ground against Dollar. Euro did succeed in crossing the crucial level of 1.5500. But the rally did not sustain and Euro fell back to 1.5473.

On Wednesday the markets digested the news and the traders shifted the focus to ECB policy meet to be held on Thursday. Traders are expecting that ECB chairman may take a hawkish stance in view of rising inflationary pressure in Euro zone. Market reaction was visible when Euro retreated from its earlier gain and was trading at around 1.5410

Dollar also improved against Yen due to lower crude oil prices and the possibilities of lower Federal Reserve rates. Dollar touched 109.17, its highest level in the last seven months after January 9.

Million Dollar question – Is this a short term rally or it is here to stay? All eyes are on ECB policy meet on Thursday.