Rising Risk Appetite

The euro rose against the US dollar in Wednesday’s forex trading as rising US stocks triggered a rise in risk sentiment among investors. An expected Federal Reserve policy statement is expected this week and is bound to affect the euro to dollar exchange rate. Risk appetite has been limited by a report that showed worse than expected US economic growth.

US Figures Worse Than Expected

Analysts’ had predicted a 4.9% decline in US economic contraction but the report showed a larger than expected 6.1% decline which affected the euro to dollar rate. Most investors have been watching the Fed closely for signs of more quantitative easing. The Fed policy statement is due on Wednesday at 2:15 p.m. well before market closing time.

Sentiment in Euro Zone Improves

The euro to dollar rate was also affected by a European Commission survey which showed that economic sentiment in the Euro Zone improved more than expected. The euro to dollar rate was up 0.7% and the euro traded at $1.3240. Investors were taking advantage of the forex opportunity offered by higher yielding currencies. The Aussie dollar rose 1.6% and the New Zealand dollar rose 2.2% against the US dollar.

Pandemic Fears Affecting Currency Markets

Earlier in the week concerns about a possible swine flu pandemic caused investors to seek safe havens affecting the euro to dollar and euro to Yen exchange rates. Investors were also concerned about the health of US banks which prompted safe haven buying affecting the euro to dollar rates earlier in the week. Results from the ‘stress tests’ of 19 major US banks are due next week and are expected to affect global currency trading.

Fed Announcement Due Today

While risk sentiment has increased investors are being cautious in advance of the expected results of the Fed meeting. Since the Fed’s rates are hovering near zero investors expect an increase in further quantitative easing. No matter what the Fed announces it is bound to affect currency exchange rates.

Economic Optimism Triggers Risk Appetite

Growing economic optimism in both stock and currency markets may affect the US dollar exchange rate in the coming weeks. Many believe the worst of the recession is over dampening the allure of the US dollar as a safe haven currency. This week investors will be able to review an advance report of first quarter GDP which is expected to show economic contraction slowing in the US. This news is expected to adversely affect the US dollar exchange rate.

Q1 GDP Report Due

Joe Manimbo of Ruesch International stated, “I think what’s really going to probably grab the most attention will be the first look at Q1 GDP. We could see the dollar perhaps react negatively if we see a more encouraging result, which of course would boost risk appetite and reduce demand for safe-haven currencies.” Another event expected to affect the US dollar exchange rate is the upcoming meeting of the Federal Reserve. Forex traders will be paying close attention to statements from the Fed searching for clues about the Fed’s assessment of the economy. Traditionally data from the Fed has an effect on the US dollar exchange rate in currency markets.

Safe Haven Demand Falling

Safe haven demand has been falling affecting the US dollar exchange rate. Larger than expected corporate earnings and economic news has lifted investor sentiment and many see signs of economic recovery in the US. In an article in the Financial Times US Treasury Secretary stated, “There have been some encouraging signs that the global economic downturn may be slackening.”

Current US Dollar Exchange Rates

On Friday the US dollar exchange rate against the Euro was at $1.3267, the highest in a week. The US dollar exchange rate against the Japanese Yen was at 96.99, a decline of 1.1%. One factor expected to affect the US dollar exchange rate include US banks ‘stress tests’ which investors will be watching closely.

Several Economic Reports Expected This Week

Other economic reports that will affect the US dollar exchange rate include The Consumer Confidence report on Tuesday, Personal income and consumption for March on Thursday, and consumer sentiment for April on Friday. It looks like a busy week ahead for FX traders.

Euro to Dollar Rate Little Changed

The Euro to Dollar exchange rate was little changed in Tuesday’s trading. A decline in European shares caused the euro to dollar rate to erase earlier gains made by the euro due to larger than expected gains in German investor sentiment. Investors remained concerned about the health of US banks.

Financial Institutions Struggling

Banking giant Mellon reported a decline in profits of over 50% and State Street Corp reported an 8-12% decline in operating revenue. The earnings reports caused a decline in stock markets and reinforced the view that financial institutions are struggling and recovery will take more time. Economists say that mixed reports from financial institutions are keeping risk aversion high and are affecting the euro to dollar rate.

Investors Dump Euro in Favor of Dollar and Yen

These mixed reports have caused many forex investors to dump the euro in favor of safe haven currencies which include the US dollar and the Japanese Yen. The Euro to dollar exchange rate remained unchanged at $1.2920, down from a high of $1.2988. The euro to dollar rate had risen in advance of the ZEW report which measures German investor confidence.

Euro to Dollar Rate to Remain Under Pressure

The euro to dollar rate is expected to remain under pressure due to uncertainty whether the European Central Bank will adopt unconventional policies to address the ongoing global recession. The ECB is seen by many economists as behind the curve in adopting policies to address the recession and credit crunch and this has had an adverse effect on the euro to dollar rate in currency markets.

Investors Focus on Health of Banks

Investors are expected to continue the focus on banks and the health of the financial industry. There is a great deal of uncertainty over how well lenders will perform if the global recession proves to be longer and deeper than expected. Risk aversion is expected to continue to put pressure on euro to dollar rates on Forex exchanges.

Financial Sector Concerns Affect Risk Sentiment

The recent rise in risk appetite has been dampened by concerns about the banking sector and credit markets. Last week investors snapped up forex opportunities offered by high yielding currencies like the Australian and New Zealand dollars. The Japanese Yen and the US dollar rose on Tuesday as forex brokers took defensive positions as recent optimism faded.

Yen Gains on Safe Haven Buying

The Yen had hit a six month low against the Euro and the dollar but gained as renewed concerns about the health of the banking system emerged. News about the failure of IBM’s takeover bid for Sun Microsystems also sent investors to the safe haven and forex opportunities offered by the Yen and Dollar.

Euro Zone GDP Declines

Figures from the Euro Zone showed a 1.6% fall in GDP during the fourth quarter. A 0.9% decline in European stocks and a 1% fall in the Standard and Poor’s 500 stock futures also put pressure on the Euro and other higher risk currencies. The decline in equities prompted forex brokers to seek dollar denominated assets which are seen as safe havens in down markets. The Yen which is also seen as a safe bet rose providing investors with forex investment opportunity.

IMF Warns of $4 Trillion Toxic Debt

A report by the Times that stated that the IMF will warn that toxic debt by banks and insurers could total over $4 trillion dollars had investors seeking the safe havens and forex opportunities of the dollar and Yen. The Yen did not react to the news that the Bank of Japan will leave rates unchanged at 0.1%.

Long Easter Weekend Ahead

Many forex brokers expect currency markets to be driven by stock markets in advance of the long Easter weekend. Should stocks rise towards the end of the week it could signal a change in risk sentiment and provide forex opportunities for investors.

Yen Falls as Stocks Gain

On Monday the Japanese Yen hit a six month low against the US dollar and the Euro. Many forex brokers saw the decline as the result of increased risk sentiment and gains in US and Asian stock markets. The Yen is seen as a safe haven currency and as risk appetite grows investors sell the Yen and seek forex opportunities in higher yielding currencies.

Global Plan For Developing Economies

Forex brokers cited emerging market asset recovery and a global plan to help developing economies as factors contributing to increased risk sentiment. Investors took advantage of the forex investment opportunities offered by higher yielding and riskier currencies such as the Aussie and Kiwi dollars. Mitsuru Saito of Tokai Tokyo Securities stated, “The yen seems to be becoming the easiest to secure in the market now, compared with the dollar and euro. A move may be emerging in which speculators use the yen to fund investments in other currencies and assets.”

ECB Reluctant to Cut Rates

Forex brokers and traders cited the perception that central banks may be at the bottom of their rate cutting cycle as one of the chief reasons for the Yen’s decline. Many forex brokers saw strong hesitation on the part of the European Central Bank to cut rates. The ECB did not cut rates as much as expected and is seen as behind the curve in taking unconventional measures to address the ongoing global recession.

Signs of Recovery

The Reserve Bank of Australia meets on Tuesday and many forex brokers expect no significant action by the central bank. The rise in risk appetite has affected the forex opportunity offered by the Australian dollar. The US dollar also faced pressure as investors sell the dollar in favor of the forex opportunities offered by other currencies. Many forex brokers and investors see signs of a global recovery while others believe the optimism to be premature.

As usual increased risk sentiment means increased forex opportunities on global currency markets. Some economists believe the global economy has hit bottom and recovery is underway. Hopefully their assessment is correct.

Forex Offers Opportunity Despite Market Conditions

The forex currency exchange market is the world’s largest and almost $3 trillion dollars are traded daily. Investors can easily take advantage of the many forex opportunities provided by this huge global market. During the current global recession risk aversion has been dominant in global forex trading although there have been several short lived gains in risk sentiment. No matter how badly stock and commodity markets are performing global forex trading allows investors the opportunity to make money.

Investors Waiting For G 20 Summit

Currently forex brokers are somewhat skittish in advance of the G 20 summit and the European Central Bank meeting taking place this week. The US dollar rose against the Euro as news from the G 20 summit and the ECB meeting overshadowed a report that said the US experienced the loss of 742,000 private sector jobs in March.

Aussie and Kiwi Dollars Fall

Last week investors took advantage of the forex investment opportunities that the high yielding Aussie and Kiwi dollars provided. Reduced risk sentiment sent both the Aussie and Kiwi dollars lower in global forex trading. The Aussie dollar was adversely affected by a report that showed that Australian retail sales declined by the most in nine years. The Kiwi dollar fell after the New Zealand Central Bank warned of a rise in market interest rates. The decline of these two currencies limited forex opportunities previously offered by the Aussie and Kiwi dollars. The Australian dollar fell 0.5% to $0.6878 VS. The US dollar while the Kiwi dollar fell 0.8% to $0.5548 against the US dollar.

Euro Most Vulnerable Currency

Any forex opportunities offered by the Euro are limited as the Euro is seen by many as most vulnerable to event risk of the G 20 and ECB meetings. Forex opportunities are likely to be limited until the completion of both meetings. Both meetings are likely to have an impact on forex opportunities but at the present time how much impact is uncertain.