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.

Quick Forex Tip: Currency trading in the UK is heavily influenced by the interbank market. Currency trading UK is regulated by the FSA. Regulation is much lighter in the UK and there is often very little difference between a regulated and unregulated broker. Outside the US, most regulatory bodies addressing currency transactions provide little or no requirements for brokers and regulation is nominal at best. Despite the criticisms of the FSA they do provide a measure of consumer protection and most reputable UK forex brokers are regulated by the FSA.