The US Dollar Index may extend recent losses on currency markets after European leaders expanded a rescue fund for indebted nations this week, boosting the euro and igniting a robust, across the board global rally on Thursday. ICE US Dollar Index The ICE US Dollar Index, which tracks the US dollar against six major world currencies has fallen again this week and is currently at 75.135 in trading this morning. The index traded over 80 earlier this month and touched lows near 74 in May. The US dollar, with its near zero interest rates guaranteed over the next two years, is the first to get sold off in times of global optimism, as investors use the US dollar to fund the market’s foray into risky trades. “When economic conditions are not deteriorating, there is a general risk-loving mode and the dollar will remain the primary funding currency.” said Alessio de Longis, portfolio manager for the Oppenheimer Currency Opportunities Fund, New York. Yesterday, the US dollar plunged to a seven week low against the euro and plumbed multi week troughs versus the Australian dollar and Swiss franc on the back of the European deal. However, as in any market, the US dollar’s decline maybe only a short term fall if the recent implementation of the EU agreement stalls or if there is a sudden freeze up in global credit, investors are likely to buy back into US dollars, as they have always done in the past in times of market stress. “We are in a situation where banks are generally deleveraging and that I think has implications for dollar credit. If the creation of dollar credit gets impaired, that could be supportive of the dollar.” said Jens Nordvig, global head of G10 FX strategy at Nomura Securities, New York.

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