Dollar Rises on Banking Woes

The US dollar hit one month highs against other major currencies on Tuesday as banking woes and weak stocks dampened risk appetite among investors. Stocks fell on both sides of the Atlantic and concerns about the health of several UK banks prompted risk aversion. Banking giants UBS UBSN.VS posted disappointing results and UK banks Lloyds and Bank of Scotland underwent shake ups. Adding to the banking sector’s woes the European Commission said that stress tests of Euro Zone banks showed that losses could reach 400 billion euros ($590.9 billion USD) Omer Esiner of Travelex Global Business Payments stated, “We saw investors focus once again on the health of the banking sector. Stocks were generally lower and that has rekindled demand for safe-haven, low-yielding assets like the dollar and the Japanese yen.”

Euro Zone Bank Losses Projected

The ICE Futures U.S. dollar index .DXY rose 0.4% to 76.580, the highest since early October. The euro vs. dollar fell 0.8% to $1.4656. Analysts attributed the Euro’s decline to the European Commission’s estimate of Euro Zone bank losses in 2009-2010. The euro also dropped 0.8% against the Japanese yen and traded at 132.35 yen and the US dollar traded at 90.29 yen. During the current recession the US dollar has been seen as a barometer of risk sentiment among investors.

Investors Cautious

Investors remain cautious in advance of this week’s central bank meetings and the G 20 conference scheduled for this weekend. The meeting of the U.S. Federal Reserve starts on Tuesday and the European Central Bank will meet later in the week. On Friday the US jobs report is due. The Federal Reserve is widely expected to keep rates at near zero and most analysts believe this is unlikely to change in the near future. Andrew Busch of BMO Capital Markets stated, “I don’t think the Fed is going to be in a big hurry to do anything about interest rates going forward and certainly in their language I don’t expect any changes.”