Dollar Falls Against 15 of !6 Major Currencies

The US dollar experienced a slight dip after three straight days of gains as investors and currency traders sought out higher yielding assets putting downward pressure on the dollar. The dollar fell against 15 of the 16 major currencies as Asian stock markets rose due to a report from the Asian Development Bank said that regional economies will grow at a better than expected pace and demand for emerging market assets will increase. U.K. Prime Minister Gordon Brown expressed concerns about removing government stimulus programs too soon. Brown, who will be attending the G 20 summit, stated, “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”

Rising Risk Appetite Pressures Dollar

The US dollar vs. euro traded bear a one year low due to rising risk sentiment and a widespread belief that the worst of the recession is over. Many economists believe that the Fed will continue to keep rates at record lows sending currency traders in search of higher yielding assets. Lee Hardman of the Bank of Tokyo stated, “The dollar is likely to remain weak in the near term, what’s driving the dollar lower is the exceptionally loose liquidity conditions, and this encourages its use as a funding currency.”

Concern Over Euro’s Strength

Once again New Zealand’s dollar was a big winner on forex exchanges. The Kiwi rose 0.8% to $0.7250. The euro took a hit after a French official expressed concern about the Euro’s strength. In midday trading the DXY was up slightly at 76.211 after hitting a low of 75.892, the lowest since last September. Forex traders remain cautious in advance of the expected Fed statement and the G 20 summit scheduled to take place in Pittsburgh.

Dollar vs. Yen at Two Week High

The US dollar rose on Monday hitting a near two week high against the Japanese yen. The dollar rose slightly more than 1.0% against the yen and trade was muted in Asia as many major cities closed for holidays. In midday trading in New York the dollar vs. yen rate rose 1.1% to 92.26.  A dearth of economic data caused traders to take profits on other currencies that have recently rallied against the dollar. Many force traders are awaiting the results of the Federal Open Market Committee meeting Wednesday. The FOMC is expected to keep rates at between 0% and 0.25% and many forex traders will be watching for any signs of the Feds exit strategy from quantitative easing. Vassili Serebriakov of Wells Fargo stated, “The markets are consolidating and correcting ahead of the Fed decision this week.”

Dollar Correction Due

Some forex traders and currency analysts noted that investors are concerned about short dollar positions and said a correction may happen in the near future. Vassili Serebriakov commented, “We have also seen from the speculative positioning an increase in dollar shorts, in particular euro longs. So it’s surprising to see that outstanding short exposure is being scaled back.” Forex traders increased short dollar positions, betting that the greenback will depreciate, last week to the highest since March 2008 according to the Commodity Futures Trading Commission.

Dollar Gains on Euro

The euro vs. dollar fell 0.3% to $1.4659 down from a high of $1.4766 last week, the highest since September 2008. Against a basket of currencies the DXY, ICE dollar future index rose to its highest since September 10th at 76.50 up 0.6 % for the day. Stocks were down dampening risk sentiment benefiting the greenback. Investors are watching the Fed closely watching for changes in the Fed’s economic assessment.

Bernanke Says Recession “Very Likely” Over

In a statement last week Fed Chairman Ben Bernanke said that the recession was “very likely” over. Marc Chandler of Brown Brothers Harriman believes that the Fed is likely to be cautious about the US economy and will keep interest rates at record lows for an extended period of time.

Dollar Hits One Year Low

The US dollar fell to its weakest level in almost a year against the euro. Rising stocks and increased US industrial production are seen as signs of recovery causing forex traders to sell the dollar in favor of higher yielding currencies. The Kiwi dollar posted the biggest gains vs. the US dollar and investors were attracted by the three-month deposit rate that is almost ten times higher than US deposit rates. Lauren Rosborough of Westpac Banking Corp. stated, “We are in an environment that is constructive for growth. It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”

Rate Comparisons

In yesterdays trading the dollar to euro exchange rate fell 0.5% to $1.4724 the lowest since September, 25th, 2008. The Japanese yen gained 0.1% against the US dollar trading at 90.95. The Kiwi dollar rose an astounding 1.5% to $71.53. The three month deposit rate in New Zealand is 2.73% compared with US rates of 0.28% and Japanese rates of 0.38%. The Aussie dollar rose 1.3 to $87.49 and offers a three month rate of 2.93%. Brian Dolan of FOREX.com stated, “The dollar is on its back heels. Until we get a setback in the risk markets, the dollar looks to remain under pressure.”

Rising Stocks Pressure Dollar

Stock gains put downward pressure on the dollar and pared safe haven demand. The Standard and Poor’s 500 Index rose 1.4 % and the DXY which tracks the US Dollar against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish Krona fell 0.5% to 76.151, the lowest since September, 23rd, 2008. Rising risk appetite has damaged the dollar on forex markets. Michael Woolfolk of BNY Mellon stated, “The trend is for continued improvement in risk appetite. The dollar remains under
pressure.”

It is clear that increased risk sentiment is putting the US dollar under pressure. Massive US deficits are also a concern among investors.