Risk Appetite Halted

The rise in risk sentiment of the past two weeks came to a halt late last week as negative data from the Euro Zone sent investors to the safety of the US Dollar and the Japanese Yen. Last Friday the dollar closed slightly up against other currency pairs and is expected to continue this momentum into this week. Also affecting dollar exchange rates is the decision by China to purchase more US Treasury Notes.

Negative Euro Zone Data

The euro to dollar exchange rate was affected by various reports from countries in the European Monetary Union which showed that national and regional economies across the Euro Zone suffered from deeper economic decline than was forecast. Euro Zone economic fundamentals are perceived as weak with no immediate end in sight. The weakness means that many regions in the Euro Zone are not able to produce jobs and manufacturing to remain competitive in the global forex marketplace.

Yen Makes Comeback

The Japanese yen has made a comeback after slipping in the last few weeks. In recent trading sessions the yen has outperformed most major currencies. The yen to dollar exchange rate has risen to 94.80, the highest since mid March. The yen to euro exchange rate climbed to 127.30, the highest since late April. The yen to dollar and the yen to euro exchange rates will most likely be affected by two important reports from Japan.

Japanese Economic Reports Due This Week

On Tuesday the Japanese Cabinet Office will release data that is expected to show that Japan’s GDP may have declined 4.2% in the first quarter of 2009. Also expected is a Bank of Japan decision on short-term interest rates. Since the BOJ rates are currently at 0% a reduction is impossible but the decision could indicate future monetary policy.

For the remainder of the week most traders expect currency exchange rates to be affected by equity markets. Most expect the US dollar rally to be sustained through the week.