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Dollar Dips After Three Days of Gains

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.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.

 

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