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Morning Note: Dollar to Continue Deteriorating?
CNBC.com | February 28, 2011 | 11:58 AM EST

The relationship between dollar and the euro had the attention of the Fast Money Traders Monday morning as the euro set a new three-week high against the greenback.

“You got this deterioration in the dollar,” said Joe Terranova, Virtus’ Chief Market Strategist. “A lot of folks have said you have to buy the dollar here.”

The euro was rising on expectations that the European Central Bank will raise long-term rates before the end of the year in an effort to curb inflation – thus strengthening the shared currency. The Fed, meanwhile, is projected to continue QE2 to completion, non-withstanding last week’s hawkish comments by St. Louis Fed President James Bullard.

The European Central Bank will hold a policy meeting on Thursday to decide whether or not to raise the rate at which banks can borrow longer-term funds. Many investors expect the ECB could announce a rate hike after that meeting, or at least signal that it will raise rates by the fall.

But the markets’ expectations of a European rate hike could be thwarted by higher oil prices, cautioned Dennis Gartman, author of The Gartman Letter. Though “Europe has a greater propensity to tighten than we do,” Gartman said that increasing their rates would likely damage their economic recovery. “Higher oil makes rate hikes less likely,” he said.

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