Dollar at Four Month Low
The dollar fell to a four month low as investors remain confident that the worst of the global recession is past. The optimism has put pressure on the dollar and reduced safe haven demand. The euro to dollar exchange rate hit a seven week high above $1.37. Many experts are pointing to positive economic data such as rising UK retail sales, and industrial production as signs the recession may be changing course. Matt Esteve of Tempus Consulting in Washington stated, “We’ve passed the worst in the recession. We’re not necessarily moving into growth yet, but at least the pace of deterioration has slowed.”
No Need For ECB to Expand Asset Purchases
The euro got a boost after ECB Governing Council member Axel Weber said that there was no need for the ECB to expand its asset purchase program. While the euro rose against the dollar the euro to yen rate fell 0.6% to 131.56 and the yen to dollar rate was 96.46, a decline of 1.1%. The dollar has declined 3.5% in the last four trading sessions.
The ‘Green Shoots’ Theory
Recent signs of economic recovery have been dubbed ‘green shoots’ and have affected currency exchange rates in recent trading sessions. The recent rally has benefited the euro and other major currencies as safe haven demand declines and investors seek higher yielding assets. Michael Woolfolk of the Bank of New York Mellon stated, “The market seems comfortable with the ‘green shoots’ rally and buying riskier assets. Until this slows, there is no reason to remain long the safe-haven dollar…even against the low-yielding yen.”
US Consumer and Producer Figures Due
Wednesday’s US retail sales data and readings on U.S. producer and consumer prices, scheduled for Thursday and Friday are expected to affect currency exchange rates. Optimism about the global economy has caused higher yielding currencies such as the Aussie and Kiwi dollars. Experts believe that the ‘green shoots of recovery’ theory to dominate this week’s trading sessions.
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