Summer Fun for the Dollar as Safe-Haven Needs Trump Bad News

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The dollar has been deluged with economic reports, but at least one strategist suggests bad news could eventually give the greenback a lift.

Don't blink or you'll miss another report on the state of the economy. At least that's the state of play Tuesday, which has already brought reports on U.S. personal income, personal spending, the Chicago purchasing managers' index, and consumer confidence.

So far those reports have been a mixed bag. Yet Michael Woolfolk, senior currency strategist at Bank of New York Mellon , says investors tend to take a dim view of all of them. "Market sentiment appears to have become dominated during Q2 by the European debt crisis and the 'soft patch' in the U.S. economy," he wrote in a note to clients.

That's less than great for stocks - but perversely, it's not bad for the dollar.

Woolfolk notes that "any further setbacks will be met with a disproportionately sharp decline in confidence - whether or not it is fully justified on a fundamental basis." And when confidence is down, the dollar typically becomes a favored safe haven for jittery investors.

As Woolfolk puts it, "the dollar is well positioned to continue rallying this summer on growing pessimism."



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