The dollar will decline, so bet on the yen

So far in 2006, the developing 'big story' has got to be the 'pronounced decline' of the dollar, says The King Report. And it's a trend that may just keep going...

So far in 2006, the developing "big story" has got to be the "pronounced decline" of the dollar, says The King Report. The currency had an unexpectedly good year in 2005, but its rally peaked on 16 November and has been looking wobbly ever since: so far in 2006, it has fallen slightly against the euro and the pound.

And that's a trend that may just keep going. Certainly, the odds are stacked against the dollar, says Morgan Stanley's Stephen Roach. Last year, the greenback gained as US interest rates rose, making the currency look relatively more attractive, given the low interest rates of Europe and Japan. But now, "with the Federal Reserve signalling that the end of its tightening cycle is now open to debate, I expect the interest-rate differential theme to fade in importance as a driver of currencies".

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