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The dollar bulls may finally get the upper hand as it becomes clear to investors that the euro zone is behind the U.S. and the U.K. in its economic recovery prospects, Jane Foley, currencies analyst at Forex.com, told CNBC Tuesday.
"I think the next couple of weeks are going to be a big battle between euro bulls and dollar bulls," Foley said. "There are a lot of dollar bulls out there saying that the dollar will react to the strong data."
"I would say there's a very good reason to expect the euro [$$EURUSD
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] to not do well … a strong euro is not a good thing for the euro economy," she added.
The Federal Reserve starts its two-day meeting to decide monetary policy Tuesday, and investors are keen to see whether the central bank will hint at tightening measures.
Many analysts say it would be too early to think of monetary tightening, as hopes of recovery are still fragile and any attempt to mop up liquidity from the markets is likely to stifle growth.
Unemployment will likely remain high despite last Friday's U.S. nonfarm payrolls data, which came in better than expected, and Fed chairman Ben Bernanke will actually need to reassure markets that interest rates will not rise for a long time, Foley said.
"This is going to be rocky road," she said. "It is crucial that central bankers reassure investors."
Consumers are cutting back on spending to pay off their loans and save money, which is a balancing act, according to Foley. "If you look at U.S., U.K. personal consumption data over the past years, we've been buying too much on credit cards."
The U.S. and the U.K. have resorted to generous quantitative easing to kick-start their economies, but in the euro zone such efforts have been muted.
In the euro zone, the levels of debt to gross domestic product before the crisis started were much worse than they were in the U.K., and European economies need the U.S. consumer for their exports, she said. In Asia, governments have provided fiscal stimulus packages—but the U.S. consumer is crucial there for growth, too.
"I would rather be in the U.K., U.S., and Asia than in Europe," Foley said.
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