USD Draws Support from Abroad

2008 is still in its infancy, which means the self-proclaimed forex experts can be excused for offering their projections on what the year has in store for the Dollar.  If currencies were traded in a vaccum, the Dollar would probably trend upward, since many technical factors suggest it is oversold.  From a fundamental standpoint, however, it is probably overvalued, per the laws of interest rate parity and purchasing power parity.  Relative to other countries, though, it may be undervalued.  From this standpoint, argue some analysts, the biggest impetus for a Dollar upswing will come not from good news emanating from the US, but rather from bad news emanating from the rest of the world.  For example, the British economy, balance of trade, and monetary policy outlook is even more bleak than the US.  The CEO of Airbus, one of the EU's most important companies, has threatened to shift production away from the EU if the Euro remains expensive.  Finally, the Central Bank of China is allowing the Yuan to appreciate at a faster pace against the Dollar.  As far as Dollar bulls are concerned, it might be best if the US government simply sits tight. The BBC reports:

"A lot of bad news is already priced into the dollar. It's elsewhere that the shocks could come from, perhaps from the European Central Bank, or the Bank of England."

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