Dollar reverses losses as risk appetite returns

There is something that remains unsettling about the return of risk appetite at the outset of a new week, yet it’s something that eludes description. The dollar is weaker and commodities are higher, yet the rebound for the euro after its biggest two-day decline has an air of worry about it. Crude oil and silver prices rebounded with vim and vigor as investors walked in refreshed from the weekend sensing that, no matter what devastation last week brought global growth continues unabated.

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U.S. Dollar – The dollar index recoiled from its highest since April 20 although at 74.59 remains comfortably above the day’s low. Safe haven buying last week propelled the greenback sharply higher as dealers dumped euros after interpreting the words of the European Central Bank as less-likely candidate for future monetary tightening. The dollar was also fuelled by an increase in the number of people looking for work during April as private sector employers added the most jobs during that month in five years. The dollar was also extremely well bid as grain, energy and metals prices slumped on fear that growing volatility would encourage more exchanges to follow the lead of the CME Group in lifting required margins for trading. Wholesale liquidation of commodities spurred the dollar.

Euro – The fact that the U.S. economic picture book ended on a positive note has played into the hands of those bullish of the single currency unit on Monday on expectations that further evidence will emerge to show the global economic recovery intact. Others are also starting to take apart the philosophy put into place after the ECB’s press conference and feel less inclined to agree that the central bank will hold off on rate increases on growth grounds. A report released Monday showed German exports rose to the highest value ever with trade rising at a far more brisk pace than expected. Export data surged by 7.3% on the month while import data rose by 3.1%. The euro snapped back its worst two-day performance against the dollar in three years rising to $1.4441 before regrouping beneath $1.4390.

Japanese yen – There appears to be less pressure on the Japanese unit this morning allowing the dollar to continue making headway against the yen to ¥80.75. There was no fresh data released over the weekend that would shape its path with most dealers accepting that data points have been recently scarred by the impact resulting from the earthquake and to a large degree is meaningless. The yen also lost ground to the euro and eased to ¥116.00.

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