By: Barbara Zigah
Yesterday’s death of Osama bin Laden is making international headlines, as analysts focus on how it will affect everything from the U.S. army presence in the region to Obama’s popularity in the polls. But when it comes to Forex trading, the only question to ask is how the death of Osama bin Laden will affect the value of the U.S. Dollar. A quick look at how the currency fluctuated when Saddam Hussein was captured in 2003 should be indicative of what we can expect to see from the floundering U.S. Dollar in light of bin Laden’s death.
In retrospect, it's easy to notice that in December of 2003 when President George Bush announced the terrorist’s capture, both the Dow and the S&P rallied, indicating a strengthening of the Dollar. This rally was relativel short-lived, however, as the currency began to decline again only a few weeks later. The takeaway from this incident should not be ignored.
The U.S. Dollar and the Death of Bin Laden
The U.S. Dollar Index finally rose off a 3-year low, and all it took was news of the death of Osama bin Laden, the leader of the radical al Qaeda faction. Most traders agree that the gain is likely a knee-jerk reaction and the dollar will revert before too long. As reported at 2:38 p.m. (JST) in Tokyo, the U.S. Dollar Index traded at 73.152 .DXY, a gain of 0.2%, coming off a 3-year low of 72.813 .DXY struck earlier in the session. In April, the Dollar Index lost nearly 4%, and traders say that it appears that the U.S. currency has been oversold in the short term, so a correction was expected.
The prevailing perception is that the U.S. Federal Reserve’s monetary policy will remain in place for an extended period, and thus the U.S. Dollar will continue to be under downward pressure. This was highlighted last week when the Commodity Futures Trading Commission (CFTC) released a report which showed that currency speculators increased their bets against the U.S. Dollar during the previously ended week.
The U.S. Dollar was higher against the common currency Euro, gaining 0.1% to trade at $1.4792; the Australian Dollar also fell against the greenback, slipping 0.2% after touching on a 29-year peak of $1.1011.