Dollar poised to gain ground

The dollar has snapped out of a holding pattern and now appears poised to gain ground against other currencies.

The terrorist attacks in the U.S. created a serious backwash across the world, prompting a switch back into the dollar amid fears of a global slump.

Following the Federal Reserve's lead, other central banks have lowered key interest rates, helping to restore confidence in the dollar.

Major U.S. trading partners are all in the same boat.

Japan depends heavily on the U.S. market, and European nations cannot remain immune to an economic slowdown in the U.S. either as many European companies have bought into U.S. firms over the past several years.

Still, the dollar could come under severe selling pressure if international market environments undergo major changes such as a flight of foreign capital out of the U.S. and a strong rebound in neglected markets like Japan.

Confidence in the dollar could also be shaken when the euro is recognized as a key currency and legal restrictions are lifted on foreign investment in countries that have up to now been closed.

Still, a major downtrend for the dollar is not in the offing. As for the yen, the market could soon reaffirm a shift in sentiment for the worse.

The yen appears to be heading toward 130 to the dollar later in the year.