Dollar will bounce back

Published: 11 Oct at 9 AM Tags: Euro, Dollar,

The close down of the US government has been weighing heavy on dollar recently, but there are signs that a deal may be agreed in Congress. This should see the greenback recover from its lowest level in eight-months against currencies like the euro.

According to the US Treasury, by 17 December, if no agreement is made in Congress, the US will run out of cash and be unable to pay its bills. According to analysts, the dollar is being battered on two sides at the moment. One is the debt ceiling; the other is President Barack Obama’s backing of Janet Yellen to take over the top job at the Federal Reserve at the end of January.

At the moment the Fed is spending $85 billion every month on bond buying as a way of easing the US economy.

Yellen is a dove, and although quantitative easing was supposed to be reined in by this month, that is unlikely to happen. If the US does mess up on its debt commitments, the dollar will dive. However, because safe haven commodities are priced in dollars it will probably trampoline back.

Many economists are betting on the greenback trouncing the currencies of developing nations in the months to come.