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.