The US dollar fell to fresh six-month lows against a basket of currencies as risk-appetite increased amongst investors. As market investors remain optimistic on the global economic recovery, they are diversifying out of the USD. Analysts said the dollar's failure to recover shows investors are convinced by the view the global economy is over the worst, which is encouraging them to buy higher risk currencies and assets decidedly showing a preference for assets with greater yield-enhancement potential
The global economic recovery story continued to draw optimism from Monday's stronger-than-expected manufacturing activity surveys out of China, the euro zone, the UK and the U.S.
In other news, U.S. Treasury Secretary Timothy Geithner continued to reaffirm his faith in a strong U.S. currency. He sought to reassure China over its huge holdings of U.S. Treasury debt because Washington is committed to keeping the dollar strong and inflation low and stable.
The euro rallied against the dollar as global stocks rallied upon news that the global recession may be easing. Markets shrugged off today's news that euro zone unemployment rose to 9.2% in April, the highest since September 1999.
Sterling strengthened to a 7-month high against the U.S. dollar which is supported by gains in equities and increased risk appetite.
The pound had come under pressure earlier in the day, by news an Abu Dhabi government-owned firm sold its shares in major UK bank Barclays.
The Japanese yen remained range bound against the dollar despite yesterday’s booming Japanese factory output data.
The Canadian dollar continued to trade within its recent stronger levels, near 8-month highs, against the USD. This is quite a surge considering the CAD was at 4-year lows against the USD in early March.
The loonie’s rise has been credited to a combination of higher prices for oil, relatively upbeat economic data and falling demand for the U.S. dollar.
Although Canada's first-quarter GDP data came in better than expected, market players are confident the Bank of Canada is unlikely to stray from its recent pledge that it will keep its benchmark interest rate unchanged at 0.25% for the remainder of the year.
The Australian dollar is slightly off from Thursday’s 8-month highs after the Reserve Bank of Australia said it would further ease policy if needed, following its decision to hold interest rates steady at 3%. Today’s data showed net exports, added a hefty 2.2% points to gross GDP in Q1. This number was much larger than forecasts for a 1 percentage point rise, and has prompted some economists to revise their first-quarter GDP forecasts to a growth of 0.2%, from an estimated decline of 0.5%.
The surprising resilience in the Australian economy only means the RBA will be comfortable with holding rates steady for now, with any further rate cuts likely to be towards the end of the year.
The New Zealand dollar settled in at seven month highs as investors booked profits on the recent surge. The kiwi, like the Aussie, is seen as highly geared to global economic recovery and is riding a wave of market optimism.
Also lower today is the Mexican peso, as concerns about the slumping economy weighed on sentiment. The peso has been hammered since last year because of falling U.S. demand for the country's exports, which has thrown the economy into a deep recession.
Traders see the peso trading in a range between 13.00 and 13.30 per dollar in the short term.
