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Daily U.S. Forex Summary

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The US dollar continues its decline as market risk appetite returns

Mon, Jun 29 2009, 05:39 GMT
by Union Bank of California Team

Union Bank of California

The US dollar continues its decline as market risk appetite returns. Hope that the global financial and economic crisis is moderating eroded the greenback's safe-haven appeal, dragging the currency lower.
Global sentiment is that the worst of the recession may be behind us as evidence of “green shoots” continue to appear in the economy.
A government report released today showed U.S. personal income posted a larger-than-expected jump in May, while spending, which accounts for over 70 percent of the country's economic activity, also rose.
Comments from China's central bank that it would push for the international community to reduce its over-reliance on a small number of reserve currencies, also weighed on the dollar.

The euro is reaping the benefits of the weakening USD as investors flee the safe-haven currencies. The euro climbed over 1%, heading toward a two-week high of $1.4139 hit earlier this week.

The British pound is recovering after two days of losses against the USD, while a rise in UK stock prices also helped to boost demand for the UK currency.
With the dollar stung by the view that the Federal Reserve will likely keep interest rates low for a while, investors are looking elsewhere for riskier assets that may offer more returns, leading them to the GBP.
Bank of England Governor Mervyn King said this week that a weak domestic currency may help the UK economy to recover faster than other countries, which some in the market said would keep sterling vulnerable to profit taking following its climb against the dollar to around $1.6660 earlier this month, its highest since October 2008.

The narrow trading range on the Japanese yen continues. Early this morning the yen fell broadly as investors sought higher-yielding currencies and on expectations for more capital outflows from Japan.
China's central bank comments regarding its push to reduce its over-reliance on a small number of reserve currencies also weighed on the yen.

The Canadian dollar broke out of its range against the U.S. currency, boosted by firm commodity prices and a revival in investors' thirst for assets perceived to be riskier.
Oil, a key Canadian export, rose above $71 a barrel, in part, after reports of a Nigerian attack in a Royal Dutch Shell oilfield.
Today’s recovery comes after the Canadian dollar fell against the U.S. dollar yesterday, at one point touching its lowest level since mid-May.

The Australian dollar climbed to a one-week high on Friday as firmer equity markets saw investors return to riskier currencies.
The Aussie also gained ground against the New Zealand dollar after growth data there confirmed the economy had entered its longest-ever recession in the first quarter. The weak growth report also stirred speculation that kiwi rates may have to stay low for a longer period of time.
Still, some analysts cautioned the Reserve Bank of New Zealand would be reluctant to cut rates much further from a record low 2.5% because it needs to keep yields high enough to attract foreign investors to fund the country's current account deficit.

The Mexican peso firmed sharply on Friday after data showed U.S. personal income jumped in May and as an improved outlook for the global economy drew investors into riskier emerging market assets.

Published on  Mon, Jun 29 2009, 05:42 GMT