US dollar is not going to lose its magnitude, "there is no real alternative”

According to the statement made by Commerzbank foreign exchange strategist Lutz Karpowitz in a research note the conclusions that the world financial crisis may result in the weakness of the US dollar are premature.

He said that the US currency will return to the upward trend towards the end of the current year or early next year, when there will be evidences of US recovery which is supposed to come faster than in other countries due to its flexible labor market which makes it easier for businesses to operate, according to the research.

Karpowitz wrote that those three arguments like danger of massive inflation, sustainability of fiscal deficit and the end of the greenback's role as world reserve currency that some people cite as the factors to prolong dollar weakness are unsustainable when analyzed more closely.

While the Federal Reserve has more than doubled the central bank monetary supply within a short space of time there is still no impact on inflation. Meantime, the Fed plans to restrict monetary policy as soon as inflation risks are rising, he said.

What is notable, the US debt is "by no means excessive compared with other G7 countries," while its global reserve status will not be challenged because "there is no real alternative," Karpowitz added.

"Once the focus shifts back to the positive US fundamentals, the dollar should return to a firming trend," he said, adding that the Fed will raise rates sooner than the European Central Bank.