Euro and Aussie Gain on Dollar
The euro and high yielding Aussie dollar gained against the US dollar on Tuesday as risk appetite returned despite thin trading. Trading volumes were thin as investors closed out year end positions. The greenback remained close to a two month high vs. the yen boosted by recent data showing that the US economy is recovering. Later in the day investors will be watching for U.S. consumer confidence data and the Standard & Poor’s/Case-Shiller home price index for October for clues on the health of the US economy. Most traders believe that Monday’s strong U.S. retail sales figures will have a positive effect on Tuesday’s consumer confidence data.
Fed Rate Speculation
Despite repeated statements by the Fed that rates will remain low for an ‘extended period’ investors are still speculating that the Fed may raise rates sooner than expected. Johan Javeus of SEB currency 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. Trade is very, very quiet, but for now risk appetite is back on, stock markets are higher and the commodity rally has regained some strength which is positive for currencies such as the Australian dollar.”
Dollar Little Affected by Fed Proposal
The Aussie gained 0.8% trading at $0.8950 and many traders expect the Aussie to rise to $0.90. The dollar index, which measures the dollar’s performance against six major currencies, fell 0.3% to 77.427 DXY. Despite the decline the DXY is still within range of a 3-1/2-month high of 78.449. The dollar was little affected by Monday’s Fed proposal to create a “term deposit facility” which would help the Fed to withdraw money from the US banking system when they decide to tighten monetary policy.
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