Dollar may weaken in coming months, Merrill Lynch says
WASHINGTON (Reuters) - The U.S. dollar may reverse its recent gains and resume declines in coming months amid widening budget deficits as governments increase spending to boost liquidity in the markets, Merrill Lynch economists said.
"There has been a shortage of U.S. dollars in many economies and that's one of the reasons why we've been seeing many other currencies weakening across the globe. Some, especially in emerging markets overshot," Daniel Tenengauzer, head of global currencies strategy at Merrill Lynch said at a press briefing in Washington.
"But we have been expecting some dollar strength," he added. Once markets stabilize and budget deficits start to widen, there might be a reversal."
Tenengauzer said trading volatility in the foreign exchange markets should continue for another two or three months.
The U.S. dollar surged to a 15-month high against a major currencies on Friday as plunging stocks and persistently tight credit markets prompted investors to scramble for cash preferably in the world's reserve currency.
Coordinated interest rate cuts by the Federal Reserve and other major central banks earlier this week failed to relieve investors' fears that the freeze in credit markets will damage banks more and provoke a sharp economic recession around the world.
"Central banks have been extremely aggressive in the past week," Tenengauzer said. "But it will take some time for their policy actions to impact economies."
(Editing by Theodore d'Afflisio)
