The Euro gains as stocks rise and investor buy higher yielding assets

The euro rose against the dollar and the yen on speculation gains in Asian stocks will spur demand for higher-yielding assets. The yen advanced against the dollar after the Wall Street Journal reported Chrysler talks to avoid bankruptcy have broken down, damping demand for the U.S. currency. “Expectations that the recession in the U.S. and other nations will ease are improving risk-taking appetite,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “So, shares are surging and the yen and the dollar are weakening” against higher-yielding currencies, he said. The EUR/USD is currently trading at $13375 as of 8:40am, London Time.

Sterling rose broadly on Wednesday, in line with a recovery in currencies perceived to be higher risk, though investors were cautious ahead of U.S. gross domestic product data and a Federal Reserve policy decision. Meanwhile, the UK currency continued to gain on the back of Tuesday's surprisingly upbeat UK retail sales survey from the Confederation of British Industry, which fanned hopes that the UK economy may over the worst of the recession. Sterling came under pressure earlier this week as markets became more averse to risk due to flu fears and concerns over a report that Bank of America and Citigroup may need to raise more capital on the basis of stress tests for U.S. banks. But U.S. banking concerns have been put aside for now as investors wait for Monday's release of the stress test results. The GBP/USD is currently trading at $1.4915 as of 9:00am, London Time.

The U.S. economy plunged again in the first quarter, making this the worst recession in at least half a century. Gross domestic product dropped at a 6.1 percent annual pace, weaker than forecast, after contracting at a 6.3 percent rate in the last three months of 2008, the Commerce Department said today in Washington. The report, which reflected a record slump in inventories and further declines in housing, came hours before Federal Reserve officials said the economy continued to contract at a “somewhat slower” pace. “We are likely to emerge from this recession very slowly and the recovery will be very weak,” said Richard Berner, chief U.S. economist at Morgan Stanley in New York. “The aggressive policy response we have gotten will take time to work, but it will counter the still-strong headwinds holding the economy back.”

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