Currencies

The U.S. dollar has been moving higher for 6 months now.  It's up 7% in the last month alone.   The Euro topped out last November at 1.51, and has since declined in price to 1.22.  It's our view that these trends will persist, and we would not be surprised to see the Euro trade down to 1.15 by the end of 2010.

The yen has done better than the Euro.  The feeling among currency traders we talk to is that the yen is likely to continue on a gradual strengthening path relative to the dollar, until the end of this year.

The British Pound has been particularly hard hit as the dollar has rallied this year.  Traders expect that this weakness will persist, with a downside target of roughly 1.35 by year end.

What's behind the strength in the U.S. dollar?  Our view is that the dollar has regained its role as the safe-haven currency in a tumultuous global economy.  When the U.S. economy began to melt down in early 2008, global investors started to flee.  Now that Europe is in the middle of their own crisis, this money has started to flow back into the greenback.  At some point later this year, we expect this trend to reverse again.  But it's too soon to take positions in the weaker currencies like the Euro.