Markets Driven by Recovery Speculation

Recently markets have been driven by speculation that the global economy is starting to recover which has resulted in higher risk sentiment among investors. Investors have shrugged aside warnings from the European Central Bank that recovery will be slow and are seeking higher yielding investments and currencies. This has affected currency exchange rates especially the euro to dollar exchange rate.

Euro Benefits From Increased Risk Appetite

The euro has benefited from higher risk appetite in the last three trading sessions pushing the euro to a high of 1.3830. The US dollar posted losses after the release of the minutes of the Federal Open Market Committee which indicated that the Fed will continue to purchase mortgages and other debt which will result in unprecedented deficits for the United States.

Geithner Says Financial System “Starting to Heal”

Currency exchange rates have been affected by stock market rallies which have many investors believing that global recovery is imminent. This has affected the pound to dollar rate pushing it to multi month highs. Fundamental economic factors such as the stock market rally and improved outlook for manufacturing are fueling the rise in risk appetite. Remarks by US Treasury Secretary Timothy Geithner that the financial system was “starting to heal” coupled with a successful share offering from the Bank of America also helped to raise risk sentiment and affected global currency exchange rates.

Investors Leave Dollar Denominated Deposits

Wednesdays trading saw the euro to dollar exchange at $1.3774 after hitting a high of $1.3830. The pound vs. dollar exchange rate rose sharply to $1.5746, a six month high against the dollar. Traders said that currency exchange rates have been influenced by investors leaving dollar denominated deposits and into higher risk assets.

This week currency markets are following the lead of equities markets and this is expected to continue throughout the week.