Forex Focus: Is the dollar showing us what a real recovery is? As Josh Ferry Woodard of TorFX (www.torfx.com) explains: "The UK economy was constricted by tough austerity measures early on, while the US economy was given time to breathe before the spending cuts and tax hikes were brought in earlier this year, allowing America to build up economic confidence and momentum." It wasn't always the case that the US dollar strengthened on the back of promising economic results. "There seems to have been a subtle shift in how the US dollar reacts on the release of good and bad news," says Charles Purdy of Smart Currency Exchange. During the crisis any bad news resulted in it strengthening, given its safe haven status, and weakening when markets became more confident. Now it seems as if good news out of the US is strengthening the dollar. And the good news has been on the rise, with unemployment falling and their budget deficit reducing as tax receipts have surprised on the upside and they have cut government costs. However, Charles Murray from FC Exchange is less bullish. This dollar rally could be short-lived. It seems that the dollar strength is coming from investors betting on the fact that the US economy will see a turnaround and other economies not being so fortunate. The dollar has also been helped by observers believing that the central bank will slowly stop pumping more money into the economy. But it's not a one-way bet, says Chris Towner of HiFX. He explains: "With equity markets pushing higher and remaining very buoyant, safe havens seem to be more last year's news as the risk-on environment prevails. The dollar is reacting more to economic news, to see whether the US will reduce or completely halt their quantitative easing programme. Mind you given the recent data they may increase it now that they have the flexibility to do so. A stronger dollar has wider implications especially on the price of staple commodities such as gold, which has plummeted in price, and oil. It's a self-reinforcing loop, as David Rodriguez from DailyFX points out: "Commodity price weakness helps fuel dollar strength, and dollar strength helps push commodity prices lower. It's interesting to note that this mostly started with the massive gold price sell-off seen last month. It has since spread to other key commodity prices. We believe the dollar has further room to run - particularly against the commodity currencies. The dollar is strengthening against the euro too, which has fallen by around 2.5 cents recently. "In the long run, euro prospects look poor, because the European Central Bank appears to be veering towards an asset purchasing programme of its own, which could have the potential to severely impact the value of the single currency against the US dollar and the pound," says Ferry Woodard.