Euro Pares Recent Gains

The euro held last week’s gains through the weekend but fell on Monday after European stock markets were down and stock futures pointed to a low opening on Wall Street. Last week’s rally in risk appetite saw the euro reaching multi month highs. Investors brushed off the results of US bank stress tests and the rally in risk appetite continues well into the weekend.

Currency Markets to Follow Stock Markets

Over the weekend the euro to dollar rate held steady at $1.3630 after reaching a seven week high of $1.3660. The euro to yen exchange rate also held steady at 134.21 after hitting a high of 134.80. Many experts doubt that the rise in risk sentiment is sustainable. Sue Trinh of RBC Capital Markets stated, “There seems to a sea-change at work in terms of general sentiment. It will be an interesting week to see how sustainable that is because there’s nothing really in terms of event risk.” She also said that currency exchange rates would look to equity markets for momentum.

Investors Turn Cautious

On Monday investors turned cautious as European shares were down 1.3% and banking shares were down almost twice as much pointing to a lower start on US stock markets. Many investors now feel that last week’s momentum is not sustainable and that the rise in risk appetite was premature. The realization that the recession is still with us and is likely to continue into the foreseeable future has affected investor sentiment and currency exchange rates.

No Significant Data on Tap

No significant economic data is expected this week although Fed Chairman Bernanke’s remarks on Monday could affect markets and currency exchange rates. Most currency specialists expect currency exchange markets to be mainly affected by stock and commodity market performance.