A bright day for the greenback?

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May 15, 10:37 AM

by Will Shanley, Denver Business Examiner

 

 

My premise was seemingly denounced Thursday when the European Central Bank announced a 2.2 percent economic expansion across the 15-nation euro zone, soundly beating analyst expectations. Jean-Claude Trichet, president of the European Central Bank, said the data vindicated the bank's decision to hold interest rates at 4 percent. The Euro gained slightly against the dollar following the news.

But Trichet said something else that should lift the hopes of dollar bulls. Trichet, speaking to an audience in Vienna, warned that second-quarter growth across the euro zone "will be less flattering." Plus, net exports were flat during the quarter, an indication that European goods are starting to become less competitive now that the Euro is so richly valued.

What does all this mean? Here's my prediction: The dollar has indeed reached a low, and once the ECB announces next quarter the "less flattering" GDP number Trichet was referring to, the European bankers will be compelled to cut interest rates. That will boost the value of the U.S. dollar and help tame inflation.             

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