German Banking Concerns Pressure Euro

The dollar rose against the euro on concerns about Germany’s banks brought the Euro’s rally to a halt. Improving consumer confidence also helped the dollar to euro exchange rate. Weak Euro Zone data also put pressure on the euro. The Conference Board’s U.S. consumer confidence index rose to 54.9 significantly higher than the 42.0 that had been predicted for May.

Treasury to Auction $101 Billion in New Debt

The US dollar traded at five month lows last week pressured by concern that rising deficits could endanger the credit rating of the US. This week the US Treasury will auction $101 billion in new debt which may test investor’s appetite for dollar assets. Last week the euro to dollar exchange rate rose as high as $1.40 but was trading at $1.3893 on Tuesday. Media reports from the UK stated that Germany’s financial regulator said that toxic assets held by German banks would “like a grenade” if banks did not take advantage of government bank plans putting further pressure on the euro.

Solid Demand For Treasuries

The dollar to yen remained at 94. 86. Fears that foreign investors had lost confidence in US debt were relieved after Tuesday’s auction revealed solid demand for US debt. Last weeks concerns about the possible downgrading of the US’s credit rating were relieved by the results of Tuesday’s auction. Melvin Harris of Advanced Currency Markets stated, “There’s been so much talk about the U.S. rating being downgraded, but to be honest, even if this happened — and I don’t think it will — the U.S. is not going to default. That shouldn’t be the prompt to sell dollars.”

Dollar and Yen Remain Strong

Risk appetite is still dominating currency markets and is affecting global currency exchange rates. While both the dollar and the yen remain relatively strong investors are seeking higher yielding currencies and investments. For most of the week currency traders expect forex markets to follow the lead of equity markets.