Rising Optimism

The US dollar hit new one year lows against the euro and other major currencies. Rising stocks and optimism about economic recovery pared safe haven demand and put downward pressure on the dollar. Increased industrial production and an increase in mergers and acquisitions cause Wall Street to rally further eroding demand for the dollar.

Link Between Wall Street and Risk Sentiment

Forex traders have sold the dollar heavily as safe haven demand diminishes amid signs of global recovery from the current recession. Investor concerns about the massive US deficit put even more pressure on the dollar and fueled a selloff of the dollar. Ronald Simpson of Action Economics stated, “There’s still this persistent link between Wall Street and risk. With stocks going up, it continues to be very difficult for the dollar to rally.”

Euro, Yen Up

In the very recent past many forex traders believed that the link between Wall Street and risk was faltering but recent events have proved their assessment premature. The euro to dollar exchange rate rose 0.3% to $1.4711 a year high for the euro. The yen to dollar exchange rate fell 0.2% to 90.85 yen. The U.S. dollar index .DXY which tracks the dollar’s performance against a basket of currencies fell to 76.151 the lowest in nearly a year.

Investors Sell US Assets

Treasury data that showed that overseas investors sold US assets for the fourth straight month put further downward pressure on the beleaguered dollar. Omer Esiner of Travelex Global Business Payments stated, “The headline number certainly paints a bit of a dark picture with regard to overall demand for U.S. assets, but I think the silver lining of this number is that we still see healthy demand from foreign central banks for U.S. Treasuries.”

Aussie and Kiwi Dollars Gain

High yielding currencies such as the Australian and New Zealand dollars have benefited from a weak dollar. The Aussie dollar rose 1.3 to 1.3 and the New Zealand dollar rose 1.4% to $0.7139.