Rise in Risk Appetite

The US dollar continued its losses against the euro on Monday. The euro gained a high of $1.4821 and traded at $1.4812 in later trading. Positive data from the US housing and construction sector triggered a rise in risk appetite among investors and put downward pressure on the dollar and the Japanese yen. US stocks rose along with gold and oil prices lifting risk sentiment and benefited commodity based currencies such as the Australian and New Zealand dollars. Nick Bennenbroek of Wells Fargo stated, “I think we’re clearly seeing some appetite for risk today. The gains in U.S. equities in particular are seeing the dollar give up some ground.”

Dollar Seen as Barometer of Risk Appetite

During the current recession the US dollar has been seen as a barometer of risk sentiment among traders and investors. The dollar rises on bad economic news as investors seek the safe haven of the dollar and the dollar falls when the news is good and investors seek riskier assets. The dollar vs. yen rate rose 0.4% to 90.50 yen and the euro gained 1.1% against the yen trading at 134.12 yen.

Economic Expansion

Good news from the US sent risk appetite higher. Manufacturing activity in the US rose to its highest in three and one half years and pending home sales also rose in September. Thomas Nyheim of Christiana Bank & Trust Co. said, “All the numbers show stabilization and the start of some expansion. That’s a continuation of what we’ve been seeing for the past couple of months.”

Busy Week Ahead

Currency markets will be presented with a slew of economic data this week. Investors remain cautious in advance of monetary policy meetings in the US, the Euro Zone, Australia and the United Kingdom. In addition the US jobs report is due on Friday and the G 20 group of nations meets next weekend. In a note to investors UBS strategists wrote, “How this week evolves could have major implications for FX markets and the global economy, as investors and policy makers alike seek to establish their strategies for next year.”

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.