The US dollar looks set to make a second straight monthly advance against the yen and euro as gains in stocks showed traders are cautiously optimistic the economy may not slide into recession after all.

“The idea that the Fed will continue to cut rates has been completely put to bed and the market is now flirting with the idea of a rate hike. That has given the dollar a boost,” said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Connecticut, in Bloomberg. More from that story:

A few weeks ago in my blog, I wrote about how the dollar was destined to rally. As I expected, the dollar went on to rally two and a half cents (pretty good in the FOREX world). But will the dollar keep its rally going? It’s doubtful.

So the total swing from a monthly surplus of $63 to a deficit of $58 billion has been a staggering $121 billion! You can probably tell by the way my eyes spin comically in my head that this is a Big Freaking Change, and it scares the hell out of me.

In the currency market, the dollar continued to backtrack after its recent runup against the euro. Late Friday, the euro was trading at $1.5473 vs. $1.5396 on Thursday.

Last week we concentrated on the outlook for domestic UK economic activity ahead of the release of the first stab at UK real gross domestic product (GDP).

“OK… This could mean a monumental swing… Or, it could be just a short-term sell off of the currencies. I’m thinking it is the latter of the two, but I could be wrong, eh?”