The Great Debate UK
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
Back in the summer, things in the U.S. were so dire that the Fed had to step in to the breach and boost the economy with a $600 billion cash injection. This was only formally announced in November, yet within two months the outlook for the U.S. economy has brightened markedly. The dollar has had a flying start to the year and appreciated more than 2 per cent against the other major currencies.
But is this reversal in fortunes too good to be true and can the huge juggernaut of the U.S. economy really turn around this quickly?
The chief reason for the boost in investor sentiment, particularly towards the dollar, is the uptick in some of the major U.S. economic indicators. The widely watched ISM surveys have jumped in recent months and there are positive signs that the recovery that was noticeable in the manufacturing sector of the U.S. economy is now spreading to the much larger services sector. Investment houses rushed to revise higher their growth forecasts at the end of last year after President Obama agreed to a two-year extension of the Bush tax cuts. All of a sudden the U.S. economy was hitting the headlines again for all of the right reasons, and after giving the dollar a wide berth for most of the second half of 2010 investors are once again happy to own the greenback.