The US dollar will test 105 against a basket of currencies in the short term, analyst says

CNBC reports that world markets are facing a simple but serious problem: There just aren't enough dollars to execute trades and transactions.

That explains why the trade-weighted dollar index, gained more than 4% last week. The broad dollar index measures the value of the dollar against a basket of currencies, namely the euro, pound, yen, Canadian dollar, Swiss franc and Swedish krona.

Given the scarcity of dollars, the U.S. Federal Reserve last week announced that it set up financing channels with nine other central banks, including the Reserve Bank of Australia and Monetary Authority of Singapore, to stabilize currency markets.

That opened access to $450 billion of additional dollar funds, with a commitment to keep the arrangement in place for at least six months.

However, analysts aren't sure if that amount will be enough to contain the fear among investors who are hoarding dollars as market gains evaporate.

Khoon Goh, head of research at Melbourne-based ANZ Bank, thinks the greenback will rise to 105 on the dollar index in the short term.

"The swap lines will help to some extent. However, it is unlikely to be sufficient given the extent of dollar demand. From a technical perspective, the dollar looks overbought, so some consolidation can be expected. However, this is likely just a pause before another push higher," Goh told CNBCl.

The Fed announced open-ended additional stimulus on Monday, and Goh acknowledged that some steam came off the dollar rally.

"We will probably see the greenback consolidate for a while, but the key will be how other major central banks respond as well," he said. "If the (European Central Bank) and (Bank of Japan) also start to announce more measures of their own, that could still push the dollar index toward 105 over the short term."