The outlook is improving for the dollar because of signs that the US economy is on the mend.
Analysts bullish on resurgence of dollar
The greenback is looking healthier and signs that the US economy is picking up have moved many analysts into bullishness for the dollar.
Ilya Spivak, currency strategist at Forex Capital Markets in New York, said: "With economic data being better and better as the months go on, and expectations that the US will outperform the entire G10 except Australia, there will be a lot of pressure on the Fed to rate hike in the second half of the year" Record low interest rates in the US have reduced the attractiveness of US assets and pushed down the value of the dollar in the past.
Although a US employment report last week showed non-farm payrolls rose by less than expected last month, analysts said it was the strongest indication yet that the US economy was improving.
The dollar also benefited as a report last week showed record growth in US private sector employment. "We are bullish and looking for a reversal of the second half of 2010," said Calvin Tse, foreign exchange strategist at Morgan Stanley.
The Dollar Index, which tracks the greenback against a basket of six currencies including the euro and yen, fell 10.6 per cent over the last six months of last year from a peak of 88.394 at the start of June. But a resurgence in the currency looks on the cards this year as the index gained for a sixth day at the end of last week.
Although this week has been less positive for the dollar as it dropped 1.2 per cent to 80.8 from about 81 on the Dollar Index, the long-term outlook is solid, analysts say.
Mr Spivak dismissed theories that quantitative easing, or injecting cash into the economy, would cripple the value of the dollar and said that for every dollar the Federal Reserve injected into the system, less than a dollar came out.
"While the Fed may essentially be printing money, they're doing it inside of banking institutions," he said.