Forex Yellow Pages

US Dollar Slips as Risk Aversion Subsides

Written by Terri Belkas and David Song, DailyFX.com

The US dollar swayed as investors continued to feed their risk appetite, leading the higher-yielding commodity currencies higher. As a result, the low yielding Yen took the biggest loss against the greenback, with the Swiss franc following behind as the pair rose to trade in the 1.044 range. Against the European currencies, the US dollar continued to lose its footing as mounting inflationary concerns in Europe took hold of investors. As a result, both the Euro and British pound advanced against the US dollar as the pairs rose to 1.553 and 1.957, respectively.

A speech by Chicago Fed President Evans lowered the growth prospects for the US economy as he highlighted the growing weakness in household spending, and stated economic growth to remain sluggish throughout 2008. However, Fed President Evans did go on to say that he expects economic growth to recover by 2009, and expects inflation to fall within 1.5 to 2 percent by 2010. On the economic front, the US Budget Surplus fell to $159.3B from $177.7B as the government continued to dish out more money for military and governmental agendas, with corporate tax receipts falling more than expected as it dipped 15 percent this year.

The stock markets started the week strong as HP moved a step closer in completing its takeover of Electronic Data Systems Corp, with oil prices adding to the mix as it fell for the first time in seven trading sessions. As a result, the DJIA rose 130.43 points to 12,876.31 points, with 27 of the 30 components advancing. The broader S&P500 picked up 15.30 points to hold off at 1,403.58 points, with advancing issues more than doubling the number of declining issues.

Demands for US Treasuries wavered as the stock markets advanced, with investors turning away from the safe haven of risk free bonds. As a result, the benchmark 10-Year yield jumped to 3.797 percent from 3.775, while the 2-Year yield surged to 2.321 percent from 2.247.

Looking ahead, we expect increased volatility for the British pound and US dollar as the UK Consumer Price Index and the US Advanced Retail Sales Index will be the major event risks for tomorrow. We expect UK consumer price inflation to edge up to 2.6 percent from 2.5 percent, while we anticipate US retail sales to drop 0.2 percent from 0.2 percent. The UK CPI data is due out for release at 8:30 GMT, and will be followed by the US Retail Sales index at 12:30 GMT.