What's going on with the dollar?

There is an interesting article by Jeff Cox on the CNBC.com web site entitled "The Dollar Stages a Comeback the Hard Way." It does not give us any definitive answers about exactly where the dollar and commodities prices will head next, but is does present some good background material. The article does in fact argue for the U.S. dollar getting stronger in the near future, but it also recognizes a significant level of uncertainty. The article tells us:

... the dollar still has managed to stabilize and is hinting at a comeback.

"I think the prospect for improvement in the value for the dollar is getting better everyday," said David Resler, chief economist at Nomura Securities International in New York.

And:

"One of the things we noticed is there were some real high-level people sent to the Middle east in March up until June," said Weiss Research currency analyst Jack Crooks, referring to several White House figures including Treasury Secretary Henry Paulson. "Our guess is maybe the oil producers in that area are just not reallocating back out of the dollar as fast as they were in the past."

At the same time, there continues to be strong sentiment that the commodity trade as a whole is unwinding, and the increase in value for the dollar will only exacerbate that.

...

One of the big beneficiaries of a dollar uptick, even a minor one, could be simple market psychology, which has been a critical factor in a time when emotions have ruled trading to a higher degree than usual.

...

"It's psychology and confidence," he said. "A strong dollar provides that and it flows directly into equities, too."

In short, there appear to be hints that the U.S. dollar will strengthen and that this will help to push stock prices higher. And commodities prices will probably bounce all over the map.

-- Jack Krupansky