Dollar Falls in Thin Pre Holiday Trading
The dollar fell slightly against the euro in thin pre holiday trading. Gains in US and European stock markets lifted risk sentiment and put slight pressure on the dollar. Many analysts have pointed out that recently the dollar’s relationship with stocks is weakening. Omer Esiner, of Travelex Global Business Payments stated, “What we saw was some consolidation (in the dollar) overnight and that looks like it’s continuing into the U.S. session. Keep in mind the dollar had a very impressive week last week, rising pretty much across the board, so it’s no surprise to see a little bit of consolidation.” In early trading on Monday (Dec. 21st) the euro gained 0.1% against the dollar but stayed close to Friday’s low of $1.4262, its weakest since September.
Additional EU Bank Writedowns
The euro has declined below recent levels of $1.50 and has been pressured by investor concerns about EU banking troubles and the downgrade of Greece by two rating agencies. On Monday the European Commission said the euro was overvalued and that the Euro’s appreciation could hit some economies in the euro zone. The European Central Bank said that EU financial institutions may have to write down an additional 187 billion euros ($268 billion USD) putting additional pressure on the euro. Mansoor Mohi-uddin of UBS AG stated, “Sentiment in the euro zone will suffer from the fiscal troubles of its weakest members. This hurts the euro as it makes it less likely the ECB will be in a position to raise interest rates if one of its member countries faces the threat of defaulting on its debts in future.”
Dollar to Hold Recent Gains
Most currency analysts expect the dollar to hold onto recent gains. The Fed’s positive assessment of the US economy, diminishing unemployment, and strong retail sales figures have helped the dollar to retain its momentum. Masafumi Yamamoto of Barclays Capital in Japan said, “The dollar may extend gains a little more as momentum buyers could chase the dollar up while it stays in an uptrend. But gains are likely to slow down, unlike what we saw last week, because many dollar-short positions have already been neutralised by now, and short positions in the euro on the other hand are growing.” This week the US will release its third quarter GDP report.
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.
