Euro Falls on Profit Taking

The euro to dollar rate fell as investors took profits on the Euro’s recent rise to $1.41 pushing the euro downward to $1.4003 a decline of 0.4%. Firas Askari of BMO Capital Markets stated, “These are rather violent markets without huge conviction, so when the euro got a bit heavy, people headed for the door.” Goldman Sachs Group advised investors to buy the euro as risk aversion fades and commodities rise and talk of possible alternative currencies put downward pressure on the dollar. In a note to clients the Goldman Sachs foreign-exchange research team wrote; “The dollar has appreciated recently on the back of higher risk aversion. We think this offers a good entry point to go long the euro against the U.S. dollar.”

IMF Says Euro Zone Recovery to be ‘Slow and Modest’

Rising growth expectations have triggered risk appetite and have affected global currency exchange rates. Goldman Sachs believes that higher commodity prices will lead to a weaker dollar. Despite bad news from the euro zone the dollar fell against the euro stalling last week’s dollar rally. On Monday the International Monetary Fund said that recovery in the euro zone would be ‘slow and modest.’ The IMF also dais European banks face $1.2 trillion in losses.

Russia to Cut Back Treasury Purchases

The US dollar was also pressured by Russia’s announcement that its central bank will cut back on purchases of US Treasuries and would purchase IMF-backed bonds instead. The Euro’s rise to above $1.41 triggered automatic sell orders and pushed the currency back down to $1.3982. Firas Askar of BMO Capital Markets stated, “These are rather violent markets without huge conviction, so when the euro got a bit heavy, people headed for the door.”

Investors Concerned About US Rates

The Aussie and Kiwi dollars were winners on Tuesday. The Aussie dollar rose 0.3 percent to 80.40 while the Kiwi dollar rose 0.4 percent to 62.95. In the last three months the Aussie and Kiwi dollars have gained 24% on the US dollar making them top performers in Forex markets. Investors remain concerned about whether the US will raise rates by the end of the year. Rising rates would be a sure indication that recovery is underway. Richard Grace of the Commonwealth Bank of Australia holds a pessimistic view, “The Federal Reserve is not going to be raising rates anytime soon. As U.S. two-year bond yields fall, the U.S. dollar will fall with them, and we’ll see Aussie, sterling and euro head higher.”