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.