After a long bout of weakness, the U.S. dollar is now on the rebound. Its strength is most evident vs. the euro, against which it's at a 10-week high.
For its part, the dollar is benefiting from signs that the U.S. economy may be picking up at a faster rate than those in the euro zone. There's also the growing belief that the Federal Reserve will tighten monetary policy sooner than previously expected.
On that score, the Fed made little news yesterday after its latest two-day policy-setting meeting. Its statement was modestly more upbeat than before about the economy. But the Fed repeated that it will keep its benchmark interest rates "exceptionally low" for "an extended period."
What was different was a clear statement reiterating when its various emergency liquidity plans are due to expire, mostly in February or March. Nobody can say we weren't warned.
The bottom line here is that we're inching toward tightening, but it will be a long process.
Even so, this has been enough to get the dollar up off the floor from its deeply oversold condition.
Another reason the dollar looks pretty good right now is trouble in the euro zone. Just as the economic outlook may be improving here, it's faltering there. What's worse, though, is the government debt situation and heightened concerns about the banks. Worries are escalating about the creditworthiness of Greece, Ireland, Spain, Italy and Portugal.
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