Wednesday, 1 Sep 2010

Dollar Falls as Positive Data Boosts Demand For Higher Yielding Assets

The U.S. dollar sharply fell today against the euro and the British pound. The dollar dropped about 150 pips vs. the euro, and the EUR/USD pair is now trading around the 1.2800 level. The dollar fell about 150 pips against the pound as well.

The catalyst for the dollar's downtrend today was the surprising Manufacturing Purchasing Managers' Index publication. The report showed that manufacturing activity, which is a key gauge of the strength of the overall economy, has expanded more than expected in August. This has increased optimism regarding the global economic recovery, and boosted demand for higher-yielding assets, such as the euro and pound.

Looking ahead to tomorrow, the most significant news event looks to be the European Minimum Bid Rate. The Minimum Bid Rate is in fact the euro-zone's interest rate announcement for September. Current expectations are that the European Central Bank (ECB) will leave rates at an all-time low of 1.00%. However if the ECB will surprise and decide to hike rates, market volatility may follow.