Monday, 12 Oct 2009

The USD Remains under Pressure as Equities Rally

Although the remarks by Federal Reserve officials over the weekend allowed the U.S. dollar to gain ground on major rivals Monday, the greenback soon fell as equities rallied ahead of a heavy flow of corporate earnings data this week. The Dollar rebounded Friday after U.S. Federal Reserve Chairman Ben Bernanke said on that U.S. policy could be tightened as a recovery takes hold. The USD hit a 2 week high against the Yen on Monday with traders covering short positions in the U.S. currency as they debated the timing of tightening in U.S. monetary policy.

However the U.S dollar remained under selling pressure due to factors including large deficits and concern about the U.S. currency's status as the pre-eminent reserve currency. Despite its gains against the Yen, dollar sentiment remained bearish, and it relinquished early gains against the EUR, after a 1% rise in European shares. Analysts said the greenback's rise on Monday was mainly an adjustment of short positions in the currency which were shown to have been piling up last week. Rising equity markets has also limited the Dollar's gains, analysts said. Rising equities have weighed on the USD as investors move into higher-yielding assets. Trading activity remained slightly thin due to holidays in Japan and the United States.