NEW YORK -- The worst may be over for the dollar and the U.S. economy, but much depends on the unpredictable course of events in the Middle East, currency traders say.
The dollar rallied late this week on the first faint glimmers of peace hopes in the Persian Gulf, favorable U.S. trade figures and declining interest rates in much of Europe, apart from Germany.
"The dollar looks good," said Bill Jansen, currency trader at Discount Corp. of New York.
Mr. Jansen said the significant improvement in the U.S. merchandise trade deficit in December, which narrowed to $6.25 billion, and "the perception that European interest rates are beginning to come down" were reasons to expect the dollar to do better.
The U.S. economy would benefit significantly from peace in the Persian Gulf, Mr. Jansen said, because consumer confidence would be restored, which would pull the economy out of recession.
U.S. companies also could be expected to win substantial construction contracts to rebuild Kuwait, "and this will also benefit the economy," said John L. Hickey, a senior vice president Helsinki, Finland-based Kansallis Banking Group.
The dollar touched a record low of 1.4450 German marks early this week, and there is a good likelihood that will prove to be a floor from which the U.S. currency will begin inching higher, Mr. Hickey said.
The Federal Reserve "will watch and wait" before further easing monetary policy, he said after yesterday's discouraging reports on industrial production and producer prices in January.