The U.S. dollarâ€™s gains may end in the middle of 2010 as central banks shy away from adding greenbacks to their reserves and the Federal Reserve raises rates at a slower pace than investors expect, Barclays Plc said.
Long-term demand for dollars is set to weaken after the currencyâ€™s share of global reserves added in the third quarter slid to less than 30 percent, a decline â€œunprecedented in a period of U.S. dol
lar weakness,â€ Barclays said in a note to clients. The dollar stemmed 11 months of declines versus the 16 most-traded currencies in December, gaining against all but two, after investors increased bets the Fed will remove monetary stimulus next year as the economy recovers.
â€œWe see the dollar strengthening in the first six to nine months of 2010 when the focus is on liquidity withdrawal and tightening of rates,â€ said Steven Englander, chief U.S. currency strategist at Barclays in New York, in a telephone interview. â€œOnce the market gets past this initial fear of tightening, the reality will be that the Fed isnâ€™t going to be tightening very fast and weâ€™ll see dollar selling again.â€
The Dollar Index â€” which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona â€” has dropped 4.2 percent this year. It has climbed 4.1 percent in December and traded at 77.928 as of 9:28 a.m. in Tokyo. The U.S. dollar has registered its biggest declines against the Brazilian real, Australian dollar and South African rand dropping by more than 25 percent this year against each