Better Than Expected GDP Figures Pressure Dollar

Better than expected US GDP figures sent investors in search of higher yielding assets putting pressure on the greenback and the Japanese yen which are seen as safe haven assets. Once again the Aussie and Kiwi dollars were big winners. The Aussie gained 2% against the US dollar trading at US$0.9162. Benchmark rates in Australia are 3.5% the highest of any of the G 7 group of industrialized nations. The Kiwi dollar also rose a full 2% against the US dollar. The New Zealand dollar last traded at US$0.7342.

Euro Gains on Dollar

The euro vs. dollar rate rose 0.2% and the euro traded at $1.4751. During most of the past year the euro has been seen as a barometer of risk sentiment and usually gains on positive economic data. Both the US dollar and the yen declined against the euro the most on seven weeks. The greenback ad yen traded lower against a basket of 16 major currencies. US GDP rose 3.5%, higher than the predicted 3.3% and caused a sharp increase in stocks.

Optimism About Global Recovery

David Tien of Fischer Francis Trees & Watts, stated, “We’re in this sweet spot where growth is not great but respectable and rates are low. That’s forcing money out into riskier assets.” The GDP figures spurred optimism about global economic recovery sending investors in the direction of riskier and higher yielding assets.

Investors Drawn Back to Carry Trades

Earlier disappointing data from the US consumer and housing sectors had pared recovery expectations triggering gains in the dollar and yen. US GDP data has drawn traders and investors back to carry trades. Michael Woolfolk of Bank of New York Mellon stated, “With Q3 GDP living up to its billing this morning, players are returning to the carry trade again, driving the dollar and yen decidedly lower.” A decline in US unemployment claims also contributed to the rise in risk sentiment.

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