There’s nothing remarkable about today’s ascent in the value of the dollar’s basket to its strongest in six days except for the fact that the session is hardly off to a risk-averse start. Government bond yields around the world are on the rise while equity indices have casually rebounded and in pre-market trading, U.S. indices are buoyant and crude oil prices have come off the boil.
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U.S. Dollar – The only major unit managing gains versus the greenback is the Canadian unit, which is feeling the glow from a raging rally in the price of oil and a string of record advances for the price of gold. The dollar’s gain is hard to explain although clearly evident on Tuesday. Three Fed Governors have each explained why not to pursue further the semi-finished quantitative easing after June and such accord may be one reason why dealers are less pessimistic on the prospects for the dollar. Yet in the cold light of day it’s pretty self-evident that the economy is in far better shape. It’s a matter of semantics as to whether to credit the Fed. Investors and policymakers alike are finding it tough to argue that more should be done when the planned purchases aimed at driving down borrowing costs have finished.
Euro – Trading the euro has been a challenging sport of late. On the one hand, the threat of inflation has rekindled the burning embers beneath the governing council at the ECB to the point that its members can no longer stand the heat. The reality of a widening yield cushion in favor of the euro is now assured and provided an immediate fillip for the euro when President Trichet warned on an imminent tightening of policy. But fact remains that the problem of inconclusiveness to the debt crisis never really went away and it appears to be resuming, acting as a drag on the single currency. The euro is fast-falling back to earth to its pre-Trichet levels delineated by $1.3900 versus the dollar. It’s also weakening from a nine-month high against the yen to ¥114.83.