The U.S. Dollar is trading lower overnight. An overnight rally in the equity markets in Asia encouraged selling of the greenback throughout the night following a strong recovery during yesterday’s trading session.
The U.S. Dollar is trading lower overnight. An overnight rally in the equity markets in Asia encouraged selling of the greenback throughout the night following a strong recovery during yesterday’s trading session. At this time the currency markets are being driven by demand for risk. When traders want risk they buy foreign currencies, when they want safety they buy the Dollar. This pattern has been around for months but has taken on extra significance during the past two weeks.
With the stock market soaring to new highs for the year, one would think that the Euro and British Pound would be moving lock-step with the moves in the equities. This has not been the case however which begs the question, what is holding back the Euro and the British Pound?
In the Euro it could be the lack of signs that the Euro Zone is recovering or pressure from the European Central Bank to keep the Euro down in order to protect the export market. For the British Pound, the outlook for the economy is still bleak and the budget deficit is still too large.
After the equity markets closed yesterday, Microsoft, Amazon and American Express announced worse than expected earnings forcing a gap lower opening in the stock indices. Although Asian traders drove up equity futures to just under yesterday’s highs, the bearish news may still be lingering in the markets which could help trigger a flight to safety break today in the Forex markets. If this occurs then the U.S. Dollar and the Japanese Yen are likely to erase some of this week’s losses.