Expect the Greenback to Remain Strong

The dollar ended Wednesday's New York session near a 14-month high against the euro and an 11-month high against the yen. To many, the risks appeared increasingly tilted to the downside for the greenback. Indications of revived U.S. economic strength and expectations for more -- including a likely boost from the upcoming employment report on Friday -- have already been built into current levels, as have prospects for more Federal Reserve rate hikes.

The dollar's short-term vulnerability was reflected in the immediate aftermath of Thursday morning's news of the terrorism bombings in London. In early trading, the euro rose above the $1.20 level vs. $1.1928 late Wednesday while the Swiss franc gained about 1% vs. the greenback. Although the dollar did rally vs. the British sterling, "the speculative community was clearly long dollars coming into today's session, and this event has clearly forced out some of the late dollar longs," observed RealMoney.com contributor Marc Chandler. "But unless the market concludes that the Fed's monetary tightening cycle will be interrupted by the impact of today's event, the dollar will likely regain its footing."

Indeed, little appears to be in the way of the dollar remaining strong in the near term and the greenback was on the comeback trail by midmorning; in recent trading, the euro was trading at $1.1938. ...