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 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 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 rate in currency markets.

Safe Haven Demand Falling

Safe haven demand has been falling affecting the 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 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 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.

Source by Jeffrey Craig Davis