This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Look for the Dollar to Recover: Opinion

By Marc Chandler

The outcome of the U.S. mid-term elections and Federal Reserve Open Market Committee meeting, coupled with the various economic reports, strengthens our base case scenario in which we expect the U.S. dollar to generally trade higher as the 2010 winds down.

Many expect the dollar to decline in the wake of the $600 billion Treasury buying program of the Federal Reserve. In contrast, we emphasize the anticipatory nature of investors. The dollar's relentless decline in September and October was, in fact, the market pricing in QE2.

As it became clear the Federal Reserve was going to provide more monetary stimulus, we anticipated roughly a 10% decline in the dollar that would carry the euro toward $1.40 and sterling toward $1.60. At the same time, we suspected that the dollar would not gain much traction until uncertainty around U.S. fiscal and monetary policy would be lifted by the outcome of the U.S. election and the FOMC meeting.


In the most immediate sense, the significance of the election is that it will allow for the resolution of key issues for businesses and households: marginal tax rate in 2011. At the same time, the Republican victory increases the odds that the 2001 and 2003 so-called Bush tax cuts get wholly extended. And finally, there appears to be a reasonably good chance that the unemployment benefits program that is set to expire at the end of this month are extended as well.

However, it is important to keep in mind that these measures will only temper and not reverse the fiscal headwinds the U.S. economy faces in the coming quarters. At this point there seems little political appetite of renewing the payroll tax credit (Making Work Pay), the single biggest program in last year's stimulus program. Indeed, the impact of this could be most severe in the start of 2011.

It is difficult for nonpartisans to divine a clear message from the Republican victory. Exit polls suggest that less than 1 in 5 thought health care was a top issue and voters appeared split (48% to 47%) between favoring repeal of national health care and expanding it. A little less than 40% thought reducing the deficit was the top priority, while a statistically identical 37% wanted to spend more money to create jobs, a full third of whom identified as Republicans. If it is clear what was voted against, it is not clear what was voted for.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $118.03 -0.71%
FB $105.52 -0.21%
GOOG $748.15 -0.02%
TSLA $229.64 5.22%
YHOO $33.16 0.61%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs