Daily Forex Overview

Previous session overview

The dollar fell against a broad range of currencies including the yen and euro in Asia Monday as recent steady stock prices and stabilizing financial markets boosted investors' risk appetite and prompted them to dump dollar assets.

At one point during Asian trade, the U.S. unit lost more than half a yen and hit its lowest level against the euro since Dec. 30. Dealers say the weak-dollar trend is very likely to continue for now.

The market has become dollar-bearish because many U.S. investors such as hedge funds were buying assets overseas such as Japanese and European stocks, which involves dollar-selling.

Euro hit a 2009 high of USD1.4168 against the greenback after the U.S. data. Furthermore, the rise in global stock markets with some equities markets posting their highest levels in 2009 also reduced safe-haven demand for the dollar.

The British pound posted its biggest monthly gain against the dollar in 24 years and it touched the highest level in 2009 versus the greenback. Cable's strong rise from 1.5918 started after the release of much better-than-expected U.K. house price index which jumped from -0.3% in April to 1.2% in May.

The Australian dollar was trading near fresh-eight month highs in Asia late Monday, having cracked through the psychologically crucial 80 U.S. cent barrier on the back of continued U.S. dollar weakness and end-of-month hedging flows. The currency has continued to defy earlier speculation it may be running too high too fast, having cut through the levels it so easily broke down through during the post-Lehman Brothers collapse meltdown of September.

Market expectation

The dollar's weak turn, generated by expectations for rampant inflation down the line amid worries about the U.S.' fiscal health, is continuing Monday as investors seek out seemingly more promising assets, including the euro, pound and yen.

Release of better-than-expected Chinese PMI data was the catalyst for another round of dollar sales as risk sentiment improved, with euro-dollar pressing back to USD1.4162, later easing back over the course of the Asian afternoon to USD1.4120. Early European dealing sees the pair easing back towards overnight lows. Bids seen placed into USD1.4100 and USD1.4075, with offers at USD1.4170, while Technical analysts see resistance at USD1.4187 (76.4% USD1.4721-USD1.2459).

Pullback over the Asian afternoon took the GBPUSD back under USD1.6200, early European trade now seeing the pair holding around USD1.6210. Euro-sterling meanwhile traded within stg0.8708/0.8733 as euro lagged the early sterling move. Cable offers noted into USD1.6250, where traders noted reports of barrier interest last week, with stops lurking above. Bids come in at USD1.6180/70, more noted into USD1.6125.

European stocks are expected to open higher Monday, benefitting from a late surge on Wall Street Friday, as investors express confidence about the economic outlook and an expected turnaround at troubled car giant General Motors.

Monday is holidays in many European countries. Reserve Bank of Australia decides on rates (expected unchanged at 3.00%). Japan April Labour Cash Earnings, US Personal Income and Spending, Core PCE, Construction Spending, UK May Hometrack Survey, Manufacturing PMI, and US ISM.

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