Magazine article Modern Trader

Bullish Case for Dollar Depends on German, Soviet Asterisks

Magazine article Modern Trader

Bullish Case for Dollar Depends on German, Soviet Asterisks

Article excerpt

Bullish case for dollar depends on German, Soviet asterisks

After spending perhaps billions on foreign exchange intervention to quell the rise of the U.S. dollar in the last quarter, central bankers know there's still trouble ahead. Fundamentally and technically, the dollar appears poised for a rebound.

The three-month outlook for the dollar vs. the Deutsche mark is a test of the 1.80 area, according to Credit Suisse in New York.

"Traders are hell-bent on divesting their holdings of European currencies," the firm's chief currency trader says, explaining the bank's forecast.

A fundamental change in investor attitudes toward Germany occurred in March. As the costs of unification have skyrocketed and the date for the expected escalation of the eastern German economy has been pushed back, international investors have become more and more nervous.

There is also increased uncertainty about German assets as the situation in the Soviet Union erodes.

U.S. officials, including Federal Reserve Chairman Alan Greenspan, also are suggesting the worst of the U.S. economic recession is past and that there are "emerging" signs that suggest the bottom is in.

While this all spells bad news for the D-mark and mostly good news for the dollar, analysts point out that much of this nervousness is psychological, not fundamental.

"Still, it's hard to see what news will change people's minds in the very near term," Shearson Lehman Brothers economists in London say.

The dollar collapse is over, analysts at Barclays de Zoete Wedd in London agreed at the close of the first quarter. …

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