No Labor Day for the Dollar

Traders of the U.S. Dollar (USD) came back from the Labor Day holiday only to see the USD take a beating during trading the early part of this week. There are a couple of reasons for this, one is fundamental, the other is . . . well, not.

On the fundamental side, the word "inflation" is starting to be whispered. There are many (mostly unfounded) fears that. as the US economy improves, it will lead to inflation and ultimately weaken the USD. This means that a lot of people are effectively "selling" the Dollar and buying other currencies. Guess what happens when you have too many sellers? That creates an over-supply which drive prices down.

On the non-technical side, it's still Summer time in many parts of the Northern Hemisphere. This means that many traders are still taking their late Summer vacations. This equates to slightly less liquidity than usual in the Forex markets. So a transaction from an otherwise "small" institution can now have a bigger effect than it would otherwise. It also means that it takes even less pessimism than usual to move the price of a currency. Unfortunately, the USD has had to bear the brunt of this effect.