Dollar action

The U.S. dollar was the second-biggest beneficiary of the economic crisis, as funds flooded into the buck as a safe haven. The U.S. dollar ended the year with a modest 4.8-percent gain vs. the Euro, as August through November saw a sharp reversal of the bear market action that has dominated the greenback since 2002. The Euro/dollar (EUR/USD) plunged to $1.23 in November from the 1.6000 July high — a 38.2-percent retracement of the 2002-2008 bear market for the U.S. dollar.

Into year-end, however, the U.S. dollar gave back some its gains, as the immediate financial panic subsided and the U.S. made a historic shift to a near-zero interest rate policy: On Dec. 16, the U.S. Federal Reserve slashed the Fed funds rate to a range from zero to 0.25 basis points, which detracts from the dollar from an interest-rate differential perspective. The Euro/dollar had climbed back above 1.4000 by year-end.

Rothfield says U.S. fundamentals aren’t particularly good. He chalks up a large portion of the massive fall rally in the dollar to “unusual market conditions and a huge shortage of the dollar globally,” which triggered safe-haven buying in the greenback and U.S. Treasuries.

“We think in the early part of the year — through the spring — the U.S. dollar will struggle under the weight of U.S. quantitative easing,” he says.