Flash: The biggest risk to the dollar comes from Fed - BBH

FXstreet.com (Barcelona) - The US Dollar Index finished at its highest level since late July 2012, benefiting from increased speculation the Fed may begin tapering asset purchases as economic data out of the US continues to slowly improve and concerns over growth in Europe are brought back to the forefront.

According to Marc Chandler, Global Head of Currency Strategy at BBH, “while it is technically poised for additional gains, the biggest risk to the dollar comes from Fed Chairman Bernanke's midweek testimony. His commitment to QE and readiness to taper purchases, as others have suggested, will be closely scrutinized. The failure to confirm these growing market ideas, spurred in part by comments from two (non-voting) regional Fed presidents, could prompt some profit-taking on long dollar positions.”

He went on to add, “speculation that the Fed may take one of its feet off the accelerator in the coming weeks helped lift the dollar, other countries are easing policy. There has been even more talk about the ECB adopting a negative deposit rate. Continued sub-50 readings in the flash PMI, due midweek, will heighten the sense that the euro zone continues to contract for the seventh consecutive quarter.“