2
seemed to propel the dollar higher, as both dealers and
corporations reduce the short dollar positions built up during
the dollar's steep decline
in
November.
As
the year end approached, however, it became apparentthat other factors were also contributing
to
improved sentiment
toward the dollar:
.
Successive signs of strong
U.S.
economic growthencouraged market participants to expect that
U.S.
interest rates would continue
to
move higher.
.
Market attitudes toward the Bush administration turnedmore positive as observers noted that key positions
were being filled with experienced, pragmatic
individuals.
.
Conciliatory statements from the President-elect andCongressional leaders left the market with the
impression that serious and good faith efforts would be
undertaken by both sides
to
reduce the budget deficit.
When trading resumed after the holidays, the factorsthat had supported the dollar
in
late December continued
to
encourage dollar buying in the new year.
As
investors began
to
reassess the situation
in
the new year against the background of
the dollar's rise
in
December, and its relatively good
performance throughout
1988,
there were widespread reports
of
Japanese and European interest
in
dollar-denominated assets.
There were also reports of dehedging by investors,
as
the dollar
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