Dollar Gains on Euro

The US dollar gained on Monday and pulled back from a one year low against the euro. The dollar rose almost 1% against the Japanese yen in light Asian trading. Many Asian financial centers were closed for holidays. An absence of economic data caused investors to take profits on currencies that have gained against the dollar including the euro which as gained 2% this month. Forex traders and investors increased short dollar positions last week to their highest since March 2008 betting that the greenback would depreciate.

Pound at Five Month Low

Against a basket of major currencies the DXY rose 0.6% to 76.872 after hitting a one year low of 76.01 last week. The pound vs. euro hit a five month low after the Bank of England said that the pound’s long-run sustainable exchange rate has decreased because of economic imbalances in the UK. The euro to pound exchange rate rose 0.2% to 90.79 pence. The pound vs. dollar rate was down 0.6% to $1.6175.

FOMC Meets This Week

Forex investors are watching the Fed meeting this week for signs of changes in monetary policy. Many currency analysts believe that any positive data about the US economy from the Fed would bolster the dollar further on forex markets. Last week Federal Reserve Chairman Ben Bernanke said that it is “very likely” that the recession is over but cautioned that recovery would be slow. In recent months better than expected US economic data has prompted speculation that the Fed may raise rated from zero but many analysts believe that more time is required before the Fed raises rates.

Obama Wants Global Economy Reshaped

Some experts believe that dollar selling would increase if the Federal Reserve indicates that rates will remain at their present levels. In a research note Analysts at BTM UFJ said, “A clear message that policy is on hold is likely (on Wednesday), which will certainly temper dollar buying on the back of any changes to the quantitative easing timetable.” Forex markets are also awaiting the upcoming G 20 summit in Pittsburgh later this week. Although currencies are not expected to be formally discusses U.S. President Barack Obama has said he will push the G 20 leaders for a reshaping of the global economy.