Since early January the dollar has been rallying strongly, a move that caught many forecasters by surprise.
Behind the surge are some signs of economic recovery and a hint of higher interest rates this year. But there has also been a general scramble by investors and speculators to get ahead of the game, to buy the dollar early so that any rally will mean really nice profits.
"The market is largely speculative," said David Gilmore, senior foreign exchange economist at MCM Currency Watch
in New York, "and you make money by getting on trends early on and promoting them as best you can."
But as with last winter's upturn, this rally was not really expected. Forecasters wonder if it will last; last year's fizzled.
"From a trading point of view, the dollar went pretty far pretty fast," said Neal M. Soss, chief economist at First Boston Corp. in New York. "Now, this story has to be ratified by fundamental evidence."
Some of that evidence came in the retail sales and industrial production increases in February. But more confirmation is needed to get the dollar moving higher.
Forecasters contend that as long as data support the expectation of an economic recovery, the dollar will remain in its current range of 1.64 to 1.68 against the German mark. It closed Friday at 1.6714.
And it could move to the 1.80 range as the recovery quickens and increases the likelihood that the Federal Reserve will raise interest rates to control inflation. That would mean an increase of almost 19 percent from the end of 1991.
But some forecasters expect the dollar to fall later this year to its current levels as the German and other European economies recover from their recessions or slowdowns.
If the U.S. economy is disappointing, the dollar will fall, as it did last year when the recovery did not materialize.
Some forecasters say the Japanese yen will fall. But others predict that although the dollar has risen against the yen to the 134 level in the last three months, the yen will rally this year.
The view is based, in part, on the growing trade surplus that Japan has with the rest of the world. And some forecasters believe a rising yen, by making Japanese exports more expensive, would help curb the surplus, which otherwise adds to trade frictions. A turnaround in the Japanese economy is also forecast to support the yen.