Dollar's fight back won't last

THE dollar's revival on foreign exchanges is little more than a temporary reprieve for the battered currency, analysts believe.

They say concerns about America's massive current account deficit and the strength of the US recovery could push the greenback to new lows in coming months. The prospect of a $2 pound is likely to resurface by the end of the year.

The past few weeks have seen a dramatic turnaround in the dollar's fortunes. Against sterling, it has climbed more than 10 cents from an 11-year-low of 1.9140 to about 1.80.

It has also enjoyed big gains against the euro and a host of other currencies. But analysts have dismissed the rush to buy the US currency as little more than a temporary, technically driven move.

'Lots of investors were short of the dollar in the expectation that it would fall further,' said Nick Parsons at Commerzbank. 'The rally was the result of a defensive move to liquidate short positions rather than the start of a new speculative wave of buying. The dollar hasn't bottomed.'

Disastrous figures earlier this week showing Britain's trade in goods deficit hit a record £5.58bn in January gave the greenback another leg-up against sterling.

Adrian Schmidt at Royal Bank of Scotland said the dollar's bounce was also the result of a new risk aversion by US investors keen to bring their money back home rather than gamble on foreign assets. He predicted a choppy ride for the greenback over the summer before it starts heading lower again.

Chris Furness at 4CAST said sterling stood as good a chance of hitting $2 as it did earlier this year. 'We will start seeing the $2 pound headlines again before the year is out, I have no doubts about that whatsoever,' he said. 'The dollar is not out of the woods yet - it has just reached a clearing.'