Euro Surrenders Early Gains
High yielders such as the euro and Aussie dollar gained on the greenback in early Tuesday trading. Later in the day the euro fell 0.2% against the dollar reversing earlier gains. The dollar gained 0.4% against the yen trading at 91.99 yen. The yen also fell against 16 other major currencies as Japanese manufacturers increased production at the fastest pace in six months in November prompting a rise in risk sentiment. The Japanese currency is widely seen as a safe haven currency and usually falls as risk appetite increases. Low Japanese rates also make the yen attractive for carry trades. The dollar was also helped by expectations that Tuesday’s consumer sentiment report will be dollar positive. Geoffrey Yu of UBS AG stated, “The U.S. is probably going to outperform many economies. That’s why we have a view on a stronger dollar. Throughout 2009, the market has been overpricing the downside U.S. economic risk.”
US Retail Sales Figures Add to Optimism
The dollar remains at a two month high against the yen in thin holiday trading. Monday’s US retail sales figures for December added to investor optimism. Australian and UK markets reopened after the Christmas holidays but trading remains thin and many Japanese companies have begun year end holidays. Rising US Treasury yields have also lifted dollar sentiment among investors. Despite Fed statements to the contrary many traders and investors are speculating that the Fed may raise rates sooner than expected and will start to withdraw stimulus measures. Johan Javeus of SEB stated, “Anything that points in the direction of the Federal Reserve raising interest rates earlier than previously thought will support the dollar — there has been no indication of this from the Fed but U.S. data recently has been coming in on the strong side.”
Aussie at Twelve Day High
The Aussie rose to a 12 day high and gained 0.8% against the US dollar trading at $0.8950 and some expect the Aussie to rise to the $0.90 level. This year the dollar has fallen against 16 of the most traded currencies with the exception of the yen. Some investors remain skeptical of the dollar’s recent gains.
