US Dollar Rebounds

On Tuesday the US dollar rebounded against the Euro as US stocks fell triggering a return to risk aversion. The euro to dollar rate fell as investors took profits from the Euro’s recent rise in advance of the ECB meeting scheduled for Thursday. The central bank is expected to lower rates but there is still no word whether the bank will follow the lead of the US Federal Reserve and use unconventional measures to address the ongoing recession.

Investors Waiting For Stress Tests Results

Investors are also waiting for the results of US bank stress tests causing fluctuations in the euro to dollar exchange rate. Various news agencies have reported that the Bank of America may need additional capital of $34 billion dollars. The stress tests are expected to show that 10 out of the 19 major US banks will need additional capital raising investor concerns about the health of US banks.

Many “Overly Optimistic” Say Some Experts

Some economists believe that recent positive manufacturing data has caused many to become “overly optimistic” about economic recovery. This optimism has affected currency exchange rates causing investors to seek higher yielding assets. Many forex traders remain cautious in advance of the stress tests. Michael Woolfolk of Mellon in New York stated, “The stress test will have some negative implications, Despite the fact that we’ve had some good numbers recently…we have conditions which I think really call for some caution.”

Bernanke Says Recovery to be Slow

Optimism has boosted stock markets in recent weeks reducing demand for safe haven assets and affecting US dollar exchange rates. Most traders expect recovery to be slow and Federal Reserve Chairman Ben Bernanke said that recovery would be slow and the jobless rate will continue to rise. The results of the ECB meeting will undoubtedly affect global currency exchange rates.