Dollar Holds Friday’s Gains
The US dollar held onto last week’s gains in early trading Monday. Improving US employment figures and positive manufacturing and housing data helped last week’s dollar rally. Although the dollar slipped slightly against the yen it rose against the euro and a basket of other major currencies. Martin McMahon of Credit Suisse stated, “We had a big move on Friday, so we’ll be seeing some consolidation today.”
Correlation Between Dollar and Risk Sentiment Breaking Down
Mr. Mahon also suggested that investors are waiting to see if last week’s dollar rally is a sign that the correlation between the dollar and risk sentiment is breaking down. Since the current recession began bad news has helped the dollar and good news has put downward pressure on the greenback.
Treasury Yields Help the Dollar
After hitting a high of $1.4448 last week the euro was trading at $1.4185 against the US dollar. The dollar fell 0.3% against the yen and traded at 97.30. The dollar index was little changed at 78.869. Some experts said that a rise in US Treasury yields helped the dollar and will attract investors making it easier for the US to finance its debt.
Fed to be Upbeat About Economy
This week’s meeting of the Federal Reserve is bound to affect currency exchange rates. Many analysts believe that the Fed will end its plan to purchase $300 billion of longer-dated Treasuries in September. Many believe the Fed will extend a separate program to boost the credit flow to consumers and businesses. Barclays Capital analysts believe that the closeness of the payrolls report and the anticipated Fed meeting explain the dollar’s rally. In a note Barclay’s Capital analysts said regarding the Fed meeting, “Our US economists expect no increase in asset purchases and a more upbeat tone on the economy. In our view this would likely be a USD positive and may herald a period where positive news for U.S. yields continues to be a USD positive.”
The Fed meeting begins on Tuesday and Forex traders and investors will be watching closely.
