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How to Earn a Buck on the Stronger Dollar


Investment opportunities of a go-go greenback.

The buck is back.

The US dollar has now moved above its 50-day and 100-day moving averages, with strategists writing clients that they see the greenback on the verge of a major, sustainable upside breakout from its 13-month slump versus the euro.

The comeback could present opportunities for investors that have been itching for better entry points into the metals and some select energy names, say market pros.

Why is the dollar rallying here?

Most of the strength has been against the euro, writes Gluskin Sheff's David Rosenberg, which has broken down as the world now sees that the region's fiscal and banking sector woes may be even worse across the pond than stateside.

Ed Yardeni of Yardeni Research echoes that argument, writing in his morning missive that sentiment has turned bearish on the euro because of escalating worries about the credit worthiness of Greece, Ireland, and Spain.

"A big bank bailout in Austria was the latest sign confirming that Europe is no haven from financial tumult," Yardeni says.

As the Wall Street Journal notes, traders are referring disparagingly to Portugal, Ireland, Italy, Greece, and Spain as "PIIGS." The countries have sizable budget deficits and very low growth prospects, which, the paper points out, means their debt is on course to rise rapidly.

Better-than-expected economic data for employment, retail sales, and inventories in the US is also boosting the dollar, notes Yardeni.

In Wednesday's FOMC statement, there was virtually no change in economic or inflation assessments, and no change in policy stance or guidance, notes Alan Levenson, chief economist at T. Rowe Price.

But the Fed's reinforced intention to sunset liquidity facilities on schedule in February, writes Levenson, is an early step in preparation for the onset of rate hikes. (See also, Bernanke Trots Out the Boy Scout Motto: Be Prepared)

The dollar index (DXY), which tracks the buck against a basket of currencies, traded at 76.934 versus 76.863 before the statement, although that was still off from 77.022 on Tuesday, when it hit the highest level in more than two months.
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