The Dollar weakens as investors eye an economic recovery and take risk

The dollar declined against higher- yielding currencies as speculation the global recession is easing prompted investors to buy riskier assets.
The New Zealand and Australian dollars gained the most of the 16 most-active currencies after New Zealand’s central bank left interest rates unchanged for the first time in a year and Australia reported a smaller-than-expected drop in jobs. The euro rose against the dollar on speculation European Central Bank officials will signal a reluctance to cut interest rates, maintaining the currency’s appeal.“Capital flight from the dollar and the yen continues,” said Minoru Shioiri, a senior currency dealer in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest banking group. “The receding worries about the credit crunch and the recession also weaken the need for holding onto safe-haven currencies.” The EUR/USD is trading at $1.4015 as of 9:30am, London Time.

Sterling extended gains on Thursday, hitting its highest level against the euro this year as optimism about the UK outlook grew after a UK think tank estimated the economy returned to growth in April. The National Institute of Economic and Social Research estimated on Wednesday that UK gross domestic product expanded at a monthly rate of 0.2 percent in April and 0.2 percent in May. Investor sentiment was also supported by encouraging data on Tuesday showing house prices in England and Wales fell at their slowest annual pace in 1 and a half years in the three months to May. "These green shoots are really starting to stick a bit more in the UK," said Paul Mackel, director of currency strategy at HSBC."The weakness of sterling is definitely coming through and is benefiting UK manufacturers especially the exporters and that is helping to build the recovery profile a bit more than what we were thinking at the beginning of this year," he said. The GBP/USD is currently trading at $1.6425 as of 9:32am, London Time.

The dollar fell 1 percent against the Swiss franc on Tuesday, extending losses against most major currencies. The dollar fell to a session low of 1.0809 Swiss francs. The dollar rallied late last week and two-year government bond yields rose as better-than-expected U.S. employment data led some to bet the Federal Reserve could raise benchmark U.S. interest rates by late 2009 or early 2010.But some analysts said markets were getting ahead of themselves, adding the U.S. economy still faces considerable headwinds that will make raising interest rates difficult. The USD/CHF is currently trading at 1.0795 as of 9:40am, London Time.

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