Risk appetite is back in the market and the dollar is taking a hit because of it this morning. The US dollar fell as stabilizing equity markets in Europe and the United States eroded safe-haven flows into the greenback.
As financial markets await the outcome of the 2-day U.S. Federal Reserve policy meeting that concludes tomorrow for fresh news.
The dollar is also under pressure from concerns about reserve diversification away from U.S. assets after Moody's said one risk to the U.S.' triple-A rating is if the dollar is challenged as the main reserve currency.
Market liquidity is very thin, causing currency moves to be exaggerated. We saw a significant move after U.S. May existing home sales came in at 4.77M, which is below expectations of 4.82, vs. revised April number of 4.66M.
The euro strengthened against the dollar as European shares pushed higher, breaking above the key psychological level of $1.40. The euro rose more than 1.5% against the dollar, showing little reaction to provisional purchasing managers' surveys that showed recovery stalling in the euro zone services sector.
Concerns about the economy weighed on the British pound, which had risen broadly in the past month on views the UK economy could emerge quickly from the its worst recession in decades.
Sterling pared some loss after London's FTSE index rebounded since falling in early trade.
Today’s data from the British Bankers' Association showed that the number of mortgages approved for house purchase rose 15.8% vs. a year earlier in May, ending months of annual declines.
Despite Tokyo shares falling almost 3% today, the Japanese yen is stronger against the USD after an industry survey showed sales of previously owned homes in the United States rose at a slower-than-expected pace in May. The dollar weakened over 0.50% after recovering from an earlier three-week low just below 95 yen.
The Canadian dollar soared in early morning trading, only to give back the gains against the U.S. currency in later trading. Look for the loonie to trade near current levels ahead of this week’s Federal Reserve policy meeting.
The Australian dollar skidded to three-week lows as doubts about the strength of any global economic recovery led investors to cut leveraged bets in currencies, and commodities.
Some analysts argue that the Aussie had run ahead of global demand and commodity prices and was overdue for a pullback.
The Australian government forecasted earnings from commodity exports would drop 18% in the financial year to end-June 2010, after a 31% jump in 2008/09.
The New Zealand dollar dropped to a one-week low as uncertainty over the short term economic outlook weighed on investor sentiment. Investors will look towards New Zealand’s consumer confidence on Wednesday, Q1 current account on Thursday, and Q1 GDP on Friday for further direction into the kiwi.
