Rising Risk Appetite Pressures Dollar

The US dollar is at a five month low against most other major currencies as rising risk appetite and concerns about the US deficit pressure the dollar. Concerns about unprecedented US debt levels have added to the dollar’s woes. A report revealed that South Korea’s National Pension Service intends to reduce the amount of US government bonds and securities in its five year portfolio.

Investors Seek High Yielding Currencies

The euro to dollar exchange rate rose to $1.41 due to investors seeking higher yielding currencies and investments. The perception that the global economy is beginning to recover is also putting pressure on the dollar and affecting global currency exchange rates. Many currency experts believe that as the global economy improved the dollar will start reacting negatively to poor domestic economic data. Currently the US budget deficit is at $1.8 trillion.

Euro at Five Month High

The yen to dollar rate fell 1.7 percent to 95.25 yen and the euro was trading at $1.4137, a five month high vs. the dollar. The Aussie dollar posted a record10% gain monthly gain and traded at $0.8000. The US dollar also fell 2.1% against its Canadian counterpart to $1.0908. The DXY fell 1.5% its worst month since 1085. Jessica Hoversen of MF Global stated, “Money is flowing out of the dollar. There was a lot of institutional money sitting on the sidelines during the worst of the crisis that now is looking for (higher) yields.”

US Deficits Cause Concerns

The US dollar has traditionally been a safe haven in troubled times but deficit worries are undermining the appeal of the dollar as a safe bet. Last week’s auction of over $100 billion in US debt was well received but the final results will not be known until June. Rumors that the US may lose its triple A credit rating pressured the dollar in last week’s forex trading.

Investors are expected to continue to seek higher yielding currencies and this will affect currency exchange rates. Recent stock market rallies have heightened risk sentiment putting pressure on the dollar.

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German Bank Concerns Pressure Euro

The euro which had achieved four month highs against the US dollar fell on Wednesday due to several factors. Media reports that stated that Germany’s financial regulator had said that toxic debt held by German banks could explode “like a grenade” put further pressure on the euro. The euro to dollar exchange rate fell 0.2% to $1.3982 after hitting a high of $1.4051 on May 22nd.

Regulator Says German Banks “Are more than able” to Deal with Toxic Debt

Jochen Sanio, president of the German regulator BaFin said that German banks have 200 billion euros ($280 billion USD) of toxic debt and that write offs could be as high as 816 billion euros. Sanio also said that Germany is “more than able” to deal with the toxic debt. Many forex traders expect a further decline in the euro to dollar rate and believe recent gains are not sustainable. The 14-day Relative Strength Index which measures the euro to dollar exchange rate hit 71.12 on Tuesday, the highest since March 23rd.

Higher US Consumer Sentiment

Higher US consumer sentiment affected currency exchange rates. The Conference Board’s index of U.S. consumer sentiment rose in May to 54.9 the highest since April 2003. A report from the Richmond Federal Reserve Bank indicated that manufacturing activity in the Mid Atlantic region rose for the first time in a year.

US Housing Data Suggests Slowdown

The dollar gained after US housing data suggested a slowdown in US housing markets, rising inventory of unsold homes and falling prices. The data could prompt a return to risk aversion for investors. Omer Esiner of Travelex Global Business Payments stated, “This is a mixed bag of data, more likely the dollar will probably firm on the fact that inventories are rising and prices are falling.” Many investors remain skeptical of the ‘green shoots’ theory which suggests that economic recovery is taking place and this skepticism is affecting currency exchange rates. Robert Blake of State Street Global Markets said, “It’s going to be a long, slow recovery and we will have more bad news to come.”

For the remainder of the week currency markets are expected to follow the lead of global stock markets.

The best way to be a successful forex trader is to keep up with current forex market news. Keeping up with market fluctuations and exchange rates will help you to successfully navigate potential forex opportunities. Once you learn about forex, you’ll want to start using your knowledge to engage in live currency trading - so you can turn your forex knowledge into profit.

Dollar Falls vs. Euro For Three Straight Trading Sessions

On Wednesday the US dollar fell against a basket of major currencies. The dollar has fallen against the euro in three straight trading sessions and the dollar fell against the Japanese for three out of the last four trading sessions. The dollar vs. yen exchange rate is now at a two month low.

FOMC Releases Minutes of Meeting

The Federal Open Market Committee (FOMC) released the minutes of its meeting that indicated that the Fed plans to increase purchases of mortgage and government securities. The Fed’s actions have affected global currency exchange rates and have put pressure on the dollar. Gains in the euro to dollar exchange rates were halted by a decline in Asian stocks which prompted risk aversion.

Geithner’s Remarks

The dollar has been falling since the beginning of the week and has displayed a downward trend since April. Recent rallies in equity markets have increased risk appetite putting pressure on the dollar. Currency exchange rates were also affected by remarks by US Treasury Secretary Timothy Geithner saying the economy was “starting to heal” due to government bailouts. A successful share offering by the Bank of America lifted risk sentiment and put further pressure on the dollar.

DXY Falls

The dollar index (DXY) which measures the performance of the dollar against a basket of six major currencies fell to 80.909, the lowest since January. The dollar has been put under further pressure as investors sell dollar-denominated assets and seek higher yielding and riskier investments. Michael Woolfolk of Bank of New York Mellon, stated, “Overall, this is still a green-shoots rally. It’s evident in crude oil above $60, it’s evident in stocks, and it’s to some extent being driven by animal spirits.”

Fed Lowers Forecast

The Federal Reserve lowered its economic growth forecast and predicted higher unemployment. Despite the Fed’s bearish view of the economy currency traders ignored the Fed’s pessimistic view and sought further asset purchases which has affected global currency exchange rates.

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Yen Up vs. Euro and US Dollar

The yen to dollar exchange rate has hit a two month high and has also affected the euro to dollar rate as investors seek the safe haven offered by the dollar and yen. Falling stock markets triggered the flight to safety as investors dump riskier currencies. Falling Asian shares are supporting the return to the dollar and yen as investors bought back both currencies that had been used to fund investments in higher yielding currencies in previous trading sessions.

Risk Appetite Halted

Risk appetite has dominated currency markets in the past two weeks despite warnings from bankers and economists that a belief in recovery is premature and that stock rallies are not sustainable. The ‘green shoots of recovery’ theory has dominated forex markets in recent weeks and has affected global currency exchange rates. Reports due this week are expected to show that Japan’s economy has suffered its steepest quarterly decline since World War Two. The report will undoubtedly affect the dollar to yen exchange rate and could put pressure on the Yen.

Week to be Dominated by Equities

Risk aversion has also affected the euro to dollar rate and the euro is trading at $1.3498 on Monday’s midday trading. Many experts expect currency exchange rates to be mostly affected by stock markets during the coming week. Simon Derrick of Bank of New York Mellon Corp stated, “The broader trend is one of continued risk aversion. It’s less to do with a positive for the dollar than with people pulling away from the other markets.” Sue Trinh, currency strategist at RBC Capital Markets in Sydney, said “We’re in for another week dominated by equities and given the poor close of the U.S. market, there is caution about a sell-off in risk,”

ECB May Consider Unconventional Measures

Last week the euro to dollar exchange rate was hit hard after ECB council member Axel Weber warned against “exaggerating” recent data pointing to economic recovery. European Central Bank President Jean-Claude Trichet said over the weekend that the ECB would consider unconventional measures at its next meeting. Should the central bank adopt such measures it is expected to pressure the euro dollar exchange rate. This week most forex traders expect currency markets to follow the lead of global equity markets.

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Rally Not Sustainable

Last week’s rally in risk appetite has come to a screeching halt. Many economists had warned that the recent rally was not sustainable and that the ‘green shoots’ theory of economic recovery was premature. Despite positive US data investors remained concerned about economic prospects prompting a return to risk aversion and affecting global currency exchange rates.

Euro Zone Economy Contracts at Fastest Pace Ever

Investors and forex traders noted that the Euro Zone economy contracted at its most rapid pace on record. Dismal economic figures from Germany, the Euro Zone’s largest economy, affected the euro to dollar rate with the euro declining significantly against the US dollar. The euro to dollar rate fell 0.4% to $1.3581 and the euro fell 1.2% against the Japanese yen to 129.11. The euro is expected to reach its biggest weekly loss against the Yen since January.

Optimism Unrealistic

Markets seem to be rethinking economic predictions that point to economic recovery and this has affected currency exchange rates and forex markets. Greg Salvaggio of Tempus Consulting stated, “You certainly can make the argument that the market got a bit ahead of itself. Things are getting better. But the optimism the market priced in about 30 days ago, well, it was not realistic to be that optimistic quite that soon.” Salvaggio also predicted a euro to dollar exchange rate of about $1.3450-$1.3710 by next week.

ZEW Report Due Next Week

Should risk aversion continue experts predict the dollar will gain against commodity based currencies such as the Australian and Canadian dollars which have gained in currency markets recently. US housing data to be released Tuesday will be important to investors and will affect some currency exchange rates. The German ZEW report will be the most important piece of economic data to be released next week and could affect future ECB asset purchase decisions.

As usual a return to risk aversion benefits the US dollar and the Japanese Yen which are perceived as safe haven currencies. Next week’s trading is expected to be volatile.

Generally there are two types of options available to investors. Traditional options, which let the investor buy one currency of a pair with the other paired currency at a guaranteed exchange rate until the forex option expires, and single payment options, which allow the investor to predict a currency pair’s movement. The ability to trade forex options gives investors protection while allowing them to realize huge profits.

Dollar and Swiss Franc at Four Month Low

Both the US dollar and the Swiss Franc hit four month lows against a basket of currencies on Wednesday. Continuing risk appetite has put pressure on the dollar as safe haven demand fades. The dollar was pressured further by an article in the Financial Times that pointed out the risk of the US losing its triple A credit rating due to rising deficits. A forex trader for a Japanese bank stated, “I think the market overall wanted to test the (dollar’s) downside and the FT story linked well with that trend.”

Euro Up Against Dollar

The euro to dollar rate was up 0.2% from Tuesday at $1.3674 after hitting a seven week high of $1.3722. Confidence in money markets affected currency exchange rates as the LIBOR hit a record low of 0.906% on Tuesday. The dollar to Swiss franc exchange rate hit a four month low of 1.0977 and the dollar came under even more pressure after remarks by Japan’s opposition finance spokesman who said that Japan should avoid purchasing US bonds in dollars due to currency risks.

Dollar Index at Four Month Low

The dollar index hit a four month low of 81.871 .DXY further affecting dollar exchange rates. Optimistic remarks by Fed Chairman Bernanke stating that the results of bank stress tests were ‘encouraging’ and that the dollar is likely to remain the world’s reserve currency failed to help the US dollars exchange rate on forex markets.

UK Retail Sales Rising

The Pound to dollar rate was helped by figures that showed UK retail sales rising at the fastest rate in three years and house prices declining at their slowest rate in fifteen months. The ‘green shoots’ of economic recovery theory has dominated forex exchanges since last week. The buoyant mood in markets has had an effect on global currency exchange rates. Although some forex traders see the recent economic figures as “less catastrophic” and recommend caution the ‘green shoots’ theory is expected to dominate currency trading this week.

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European Shares Lower

The US dollar rebounded from a four month low on Monday as economic concerns sent forex investors to the safe haven of the dollar and yen. European shares fell pointing to a lower open on Wall Street affecting global currency exchange rates. Last week the perception that the worst of the global recession was over pressured the dollar as risk appetite rose. The dollar suffered multi month lows in last weeks trading as data from US banks stress tests failed to dampen risk sentiment.

Yen Rises on Safe Haven Demand

The Japanese Yen rose prompted by the decline in European shares which has affected both the euro to dollar and yen to dollar exchange rates. John Rivera of DailyFX stated, “The dollar has strengthened … as European equity markets and U.S. futures continue to trade lower.” He also stated that markets are focusing on economic fundamentals and this has affected both stocks and currency exchange rates.

Investors Cautious

Investors are also cautious in advance of US retail sales data due this week. The 8.9% US unemployment rate and the realization that the global recession is likely to be with us for quite some time has dampened risk sentiment on stock and currency exchanges. The euro to dollar rate was down 0.5% to $1.3580 after hitting a seven week high of $1.3670. Many economists and traders saw last week’s rally as premature. Lauren Rosborough of Westpac stated, “The market’s seeing a pullback from the overextended risk rally that occurred last week.”

No Near Term Events Expected

Some analysts say that with several risk related events such as the bank stress tests and US labor results a thing of the past investors remain somewhat confident. They also pointed out that there are few near term events to keep up the rise in risk appetite. Factors affecting currency exchange rates included the ECB meeting, the US non farm payrolls report, and remarks by Treasury Secretary Timothy Geithner.

Aside from the US retail sales data due this week no other significant economic data is expected. In all likelihood currency exchange rates will be mainly affected by stock market performance.

The best way to be a successful forex trader is to keep up with current forex market news. Keeping up with market fluctuations and exchange rates will help you to successfully navigate potential forex opportunities. Once you learn about forex, you’ll want to start using your knowledge to engage in live currency trading - so you can turn your forex knowledge into profit.

US Banks Need Fresh Capital

The results of US banks stress tests were not enough to dampen risk sentiment among investors and rising risk sentiment has been affecting global currency exchange rates. The stress tests gauge whether the US’s largest 19 banks have enough capital to weather a deep recession. The stress tests revealed that Bank of America will need to raise $33.9 billion, Wells Fargo $13.7 billion, Citigroup $5.5 billion, and GMAC $11.5 billion. The banks will have to raise the needed capital in six months.

Yen Pressured

U.S. Treasury Secretary Timothy Geithner said that none of the 19 banks undergoing stress tests are at risk of insolvency which raised forex investor sentiment. The yen to dollar rate was affected as investors dumped the yen in favor of higher yielding assets. Akira Takeuchi of Chuo Mitsui Trust and Banking said, “The yen was sold, especially against higher-yielding currencies, as risk aversion fell on the view that the stress tests probably won’t be as bad as expected and on data that suggested the worst for the U.S. economy may be over.”

Stocks Rally

Stock markets rallied after the results of the stress tests were known affecting currency exchange rates. The dollar vs. yen rose declined 0.3% on Friday to 98.91 yen. The euro to dollar exchange rate was $1.3516 on Friday. Better than expected US job figures also boosted risk appetite and is seen as another factor affecting currency exchange rates.

ECB Cuts Rates as Expected

Actions to be taken by the European Central Bank have affected the euro to dollar exchange rate. The central bank cut rates to a record low and announced a plan to purchase covered bonds to stimulate credit markets and boost the Euro Zone economy. Some analysts caution that while things may not get worse recovery will be slow and painful.

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Markets Closed for May Day

Weekend trading was light due to the May Day holiday. Early Monday the euro to dollar exchange rate changed in favor of the dollar as investors await a slew of economic data due this week. The European Central Bank meets Thursday and is expected to cut rates at 1% and announce other measures to address the ongoing recession.

ECB Comment Affects Currency Exchange Rates

The euro to dollar rate was affected after ECB council member Axel Weber said that Germany would not see economic growth until the second half of 2010. The statement caused concerns among forex investors affecting currency exchange rates in advance of the ECB meeting. Safe haven buying changes the euro/dollar exchange rate in favor of the dollar.

Stress Test Results Postponed

The results of the stress tests of US banks has been postponed from Monday to Thursday and the combination of the ECB meeting and stress test results should make Thursday a volatile day for currency exchange rates. Mondays trading has been volatile despite the holiday closure of British and Japanese markets. The euro to dollar exchange rate was down 0.4% to $1.3218, paring earlier gains. The dollar to yen rate rose 0.3% to 99.40.

European Central Banks Meet

Several central banks meet this week and the results of these meetings are bound to affect currency exchange rates. Central banks meeting this week are Britain, Norway and Australia. Brian Kim of UBS predicted a busy week and stated, “This week is packed, with central banks, stress test results on Thursday, US employment data on Friday - a lot of different land mines that could trip people up.”

Signs of Improvement

While many investors are expected to remain cautious this week favoring the US dollar there have been other economic factors affecting currency exchange rates. Many analysts believe that the worst of the global recession is over. Signs of economic improvement in China, the US and India has recently lifted investor risk sentiment. This week will certainly be a busy one in currency exchange markets.

If you have extensive knowledge of forex markets, you may want to trade forex futures. A forex future is an agreement to buy or sell a specific amount of currencies at a predetermined price on a set date in the future. Essentially those who trade forex futures are hoping to profit from a currency’s future fluctuations.

May Day Celebrated in Europe and Asia

Forex trading is expected to be light this weekend as Europe and Asia celebrate the traditional May Day holiday. Also affecting currency exchange rates is the postponement of the release of US bank stress tests. Many investors remained cautious in advance of the stress test results and PR firms representing US banks have been working overtime to put a positive spin on what could be bad news.

Pandemic Concerns

Earlier in the week currency exchange rates were affected by concerns of a possible global pandemic and its effect on insurance companies and triggered a round of risk aversion. In mid week risk appetite made a return affecting the euro to dollar exchange rate. The euro gained for four straight sessions and the big winners were the Aussie and Kiwi dollars.

Fed Keeps Rates Same

The dollar to yen and the euro to dollar rates were affected in mid week by the Federal Reserve statement which said that interest rates would be kept at present levels and that the economic outlook showed slight improvement. Greg Salvaggio of Tempus Consulting said that the Fed is “noting modest signs of improvement and will keep the target at the present levels, as expected. For the currency markets, the Fed’s statement seems to be helping the dollar a bit, in particular against the yen.”

Slowing US Contraction

Better than expected figures showing a slowdown of economic contraction in the US prompted a rally on Wall Street which also affected currency exchange rates. By weeks end rising risk sentiment put pressure on the dollar and the Yen although some investors remain cautious about the health of the US banking sector.

Weekend Trading Thin

Recent economic data has led many to believe that the worst of the recession is over and has had an effect on global currency exchange rates. Investors were encouraged by increased Chinese industrial production and somewhat encouraging US job figures. Trading is expected to be thin during the May Day holiday weekend.

Generally there are two types of options available to investors. Traditional options, which let the investor buy one currency of a pair with the other paired currency at a guaranteed exchange rate until the forex option expires, and single payment options, which allow the investor to predict a currency pair’s movement. The ability to trade forex options gives investors protection while allowing them to realize huge profits.