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Dollar Outlook Weak on Fed's Loose Policy: Analysts

The dollar is expected to stay weak in the short-term on the back of low Treasury yields even as the United States' economy seems on the edge of a turnaround, analysts told CNBC on Monday.

Stack of U.S. hundred-dollar bills
Stack of U.S. hundred-dollar bills

The Dollar Index has risen about 4 percent over the past one year, but analysts at Barclays Capital write in a report that as long as the Federal Reserve stays with its low interest rate policy, the dollar's rise will be tempered.

"In the short run, the Federal Open Market Committee is unlikely to change its stance rapidly," the Barclays report said. "The lesson from the 1930s, when premature tightening led to a fairly severe recession in 1937-38, has been learnt."

The report added that Treasurys have shown no sign of losing their safe-haven status, and demand for them remains strong, keeping yields in check.

Yieldson benchmark 10-year bonds added more than 25 basis points in the week of March 12, but are still at their lowest levels in decades.

Bill Gross, who runs the world's largest bond fund at PIMCO, posted on Twitter that the "Bond bull market may be dead but bear market remains in the distance," indicating that interest in U.S. Treasurys is far from over.

Panic Buying

Michael Langford, Proprietary Trader at Streamtrading.com told CNBC that he expects the dollar to weaken rather than strengthen in the short term, as "it's in the U.S.'s best interest to continue to see a lower U.S. dollar because it helps support the export-led growth the U.S. is seeing."

The U.S. economy grew at almost 3 percent in the fourth quarter of 2011.

Warren Hogan, Chief Economist of ANZ, told CNBC that the only thing driving demand for the U.S. dollar is "panic" as investors grapple with a slowdown in emerging markets and the euro zone crisis.

"We think that the only reason you would buy the US dollar is if you are panicking," Hogan said. "And given that they've (United States) got a fiscal problem, they're printing money, it's very unattractive."

He added that there might not be a big fall in the US dollar "from here but I just can't see why it would go up. It is a fear play I think."

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