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Say hello to your newly almighty dollar

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No more complaining about how U.S. fiscal and monetary policies are destroying our currency.
At least until the new year.

The dollar’s three-week-old rebound gained steam Thursday, hammering traders who figured the greenback had no shot at reviving any time soon.

Instead, fresh worries about debt troubles outside the U.S. helped trigger another rush of money into the classic haven of the dollar.

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The euro was the day’s primary victim of dollar strength. The European currency sank to a three-month low of $1.435 from $1.452 on Wednesday after Standard & Poor’s cut Greece’s credit rating to BBB-plus from A-minus, citing concerns about the government’s mounting deficit.

On Monday, Austria nationalized one of its major banks, Hypo Alpe Adria, which was drowning in bad loans made to Eastern European borrowers.

The dollar had been sinking since March as global markets resurged and many investors and traders looked for better opportunities outside the U.S. The buck also was under pressure from rock-bottom U.S. short-term interest rates, the ballooning federal budget deficit and the perception that the Obama administration wanted a weaker currency to help American exporters.

Now, Europe’s woes are making the U.S. seem like not so bad a destination after all. “It’s a reminder that the global economy is still not out of the woods,” said Gary Pollack, head of fixed-income research and trading at Deutsche Bank Private Wealth Management in New York.

In the near term, the dollar rally could feed on itself as the army of traders who had been shorting the U.S. currency bails out of those bets, said Brian Dolan, chief currency strategist at Gain Capital in Bedminster, N.J.

The popular “carry trade” -- selling the dollar to invest in emerging markets, gold and other alternatives -- turns deadly as the buck surges.

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“A lot of that is being unwound,” Dolan said. Gold plunged $28.70 to $1,106.80 an ounce Thursday. The metal is down 9.1% from its record high in early December.

There still are plenty of people on Wall Street who believe the dollar is going lower longer-term. But they may be happy to wait until January to try to make that case again. And between now and then, thin holiday trading seems likely to favor the trend already in motion -- which is dollar strength.

-- Tom Petruno

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