After meltdown, dollar may see some relief

By Gertrude Chavez-Dreyfuss - Analysis

NEW YORK (Reuters) - After plunging to another lifetime low against the euro, the U.S. dollar may finally be due for a bounce.

The euro hit a record high near $1.57 and the dollar slumped to a 12-1/2 year trough below 100 yen on Friday after J.P. Morgan Chase and the New York Federal Reserve agreed to pump emergency funds into investment bank Bear Stearns.

But analysts are now starting to think that the credit turmoil that has rattled Wall Street and pushed the U.S. economy toward recession is set to hit other economies too.

That should prompt global central banks to follow the Federal Reserve's lead and begin cutting interest rates, which would dim their currencies' appeal against the dollar.

"I think pressure on the dollar is going to abate," said David Greenwald, chief operating officer, at TG Capital, a global macro hedge fund in Newport Beach, California, which invests in currencies.

"The dollar will benefit when the world realizes that while this may be a U.S. mortgage payor problem, but that paper is held globally. There has to be contagion and once this happens, flows are going back to the dollar," Greenwald said.

For now, though, the U.S. dollar seems to be the last place investors want to be. It even fell below parity against the Swiss franc for the first time ever on Friday, suggesting that even investors looking for a safe haven prefer the Swiss currency over the greenback.

The dollar has lost about 7.0 percent of its value against the euro since the beginning of the year and more than 13 percent in the last 12 months. Against the yen, it's about 10 percent weaker in 2008.