US Housing Data Supports Safe Haven appeal of the Dollar

The dollar to euro rate rose after concerns of a US credit downgrade faded into the background and US housing data suggested that the housing market has yet to bottom out supported the safe haven appeal of the dollar. The pound to dollar rate rose to $1.60 a seven month high for the pond. The pound was bolstered by improvement in the British economy and banking sector.

Euro Hits $1.40

Last week the dollar fell on concerns that massive US deficits endangered the US’s AAA credit rating. The euro reached a multi month high of $1.40 but gains were pared by concerns about the German banking sector. Boris Schlossberg of GFT Forex stated that the recent gains of the euro “were driven not by any organic demand for euro but by fear of a possible U.S. downgrade. That’s why $1.40 has been such a cement ceiling for the euro — the fear trade has run out of gas.” In recent trading sessions the euro to dollar traded at $1.3885, a decline of 0.7%.

US Treasury Auction Well Received

Currency exchange rates were also affected by the well received US Treasury auction of US Treasury notes. $35 billion in new five-year Treasury notes were snapped up by investors and the $40 billion of two year notes drew solid demand from investors. Steven Butler of Scotia Capital in Toronto had this to say about the results of the auction, “The two-year auction was great, the five-year was OK, but we won’t know if things are OK or not until we get the 10-year, as the further you go out in duration, the more critical it is that the U.S. can get funding.” The US Treasury will auction 10 year notes in June.

Recovery a Long Way Off

Currency exchange rates have been affected by the perception that the worst of the global recession is over but many economists warn that recovery is a long way off with more bad news expected.